While over 90% of staffing leaders in a 2024 survey said they expect their firms to grow, tight talent pools, economic uncertainty and difficult or reduced job requisites can pose challenges. 

Another frequent challenge is access to cash flow and making payroll. About 90% of businesses experience cash flow issues at some point. Staffing firms often must also contend with slow payments and tight margins — the average gross margin for US staffing firms is about 22.7%, often less depending on roles.

The results of reduced access to cash flow and late payments can translate to staff and customer dissatisfaction and reduced company growth.

The best time for business owners and executives to think about cash flow is before it is needed. Following are essential cash flow considerations for staffing companies:

Current capital. Do you have enough to fund a minimum of 4-6 payrolls, or preferably 6-10, before getting paid? Even with 30-day terms in contracts, customers may not pay until 60–75 days out.

Liquidity reserves and cash for growth. What revenue do you expect to make? How much will it cost you? What are worst case scenarios? Performing an assessment or hiring professional help is money and time well spent.

Consider:
• Weekly cash tracking
• 13-week forecasts
• Customer collection/payment assessments
• Vendor payment requirements
• Time to convert resources into cash
• Liquidity levels required to ensure cash meets operational needs

Set up:
• Monitoring protocols: Daily cash reviews, weekly forecasts, monthly trend analyses, quarterly assessments.
• Response strategies: Early warning triggers, documented action plans, communication with financial partners, and relationships with financing sources.

Emergency needs. In addition to ensuring day-to-day operations, consider cash requirements for unexpected needs, such as a drop in business, unexpected office expenses, high recruitment fees, resolving disputes, etc.

Financing options. There are other options available besides traditional lending. Accounts receivable financing, or leveraging cash tied up in a company’s accounts receivables to meet payroll and working capital needs, does not require debt financing and can ebb and flow as receivables grow and/or decrease. Terms are typically based on customers’ ability to pay versus the staffing company’s historical performance, and payment is not required until the invoice is submitted and the factor funds on them.

Regardless of type of capital, it’s important to carefully vet potential financial partners. Staffing companies should:

1. Research: Google the company; read reviews; know terms and services they offer. Some simultaneously provide background checks, drug tests, workman’s compensation, payroll, etc. This may be a plus for some staffing companies; others may find it more economically feasible to do these in house.
2. Talk with them: Particularly a decision-maker in addition to sales. Ask to see a draft of their legal documents to compare with others.
3. Ensure transparency/trust: A negative financial relationship can harm your business and be difficult to get out of. Look for a factor that is willing to talk with you, learn about your business and focus on being a relationship lender versus transactional. 
4. Avoid the hard sell: A typical factoring onboarding process can take 10 business days or more, as can a business loan, depending on type. Avoid companies that push you to “sign now”. 
5. Ensure advantageous terms: Be wary and know interest and payments over time, up front. Some options, such as merchant cash advance loans against future receivables — typically given for a specific dollar amount over a defined period of time, similar to a term loan — might seem good on face value. Interest often starts accruing on day one, even if funds are not needed/used, and the interest rate can be up to four to five times the billing rate for a staffing company, regardless of revenue.

Cash flow liquidity is an essential component in ensuring strong staffing operations and growth. Having a plan in place can help to ensure you get the best terms and have funds accessible before they are needed.