Staffing has the clearest cash gap of any trade. Workers are paid every week or two, clients are invoiced monthly and pay on terms, and the agency funds the difference. Nothing about that is unusual, and nothing about it goes away as the business grows. It grows with the business.
Why the gap exists
An agency's cost is hourly and immediate. Its income is invoiced, approved and paid on a cycle it does not set. In a placement business with a hundred workers, the gap between payroll out and client cash in can represent a substantial sum even when every client pays on time.
Add a slow payer and the arithmetic changes quickly. The agency cannot pause payroll, and it has no leverage over a client's payment run once the hours have been worked and approved.
What the client is actually paying for
A staffing invoice is a bill for hours, not for goods. That makes the evidence different from other trades. The client is paying for time worked and approved, so timesheets or electronic hours are the proof, and a provider buying the invoice will want them attached.
Where a client approves hours weekly, the paperwork is straightforward. Where approval happens once a month in a single document, the invoice can be held while the client's operations team works through it. That delay is administrative, but it still sits on the agency's balance sheet.
Spread and margin
Staffing runs on the difference between the bill rate and the pay rate. The fee charged by a funding provider comes out of that difference, which means the margin has to be able to absorb it. A high volume, low margin placement business needs to look at the arithmetic more carefully than a specialised agency charging for scarce skills.
How factoring is used
The agency sells the client invoice after the hours are approved. Under a notification arrangement the client is told to pay the provider, which also takes over reminders. The agency receives an advance, keeps paying its workers, and receives the reserve less the fee once the client settles.
Many agencies use a whole-ledger arrangement rather than selecting invoices, because the need recurs every pay cycle rather than appearing occasionally.
Sector cautions
- Client concentration: a few large accounts can make the whole ledger hard to place.
- Disputed hours: a single unapproved shift can hold an entire invoice.
- Credit notes and rebates, which reduce what is ultimately collected.
- Temp to permanent conversions, which change the invoicing and the relationship.
- Employer obligations, which stay with the agency whatever the funding arrangement.
Questions to ask a provider
- Which evidence of hours do you require with each invoice?
- Will you buy invoices from my largest client, and up to what limit?
- How are credit notes and rebates treated?
- Is the arrangement recourse or non-recourse?
- How quickly after invoice submission is the advance paid?
Related guides
Read full turnover factoring for the whole-ledger structure most agencies use, and recourse and non-recourse factoring for the risk terms. City context sits in the Toronto guide, and the process is explained in how invoice factoring works.