100% Payroll Funding

Staffing agencies are continually subjected to an onslaught of direct mail from funding companies, print ads in staffing-industry trade publications, and bulk e mailings. There are two program offers in the funding marketplace that funding shoppers should be better educated about; offerings of (95% up to) 100% funding, and funding without a personal guaranty. Neither of these offerings can be done without tough (sometimes harsh) controls or hidden reserves captured by clever accounting methods and legal clauses. Basically all of the 100% offerings are not truly "100%"; sensibly, nobody takes 100% risk on a continuing basis on just thin-air paper collateral. If they were to do so, the price and rate would be astronomical.

This is not to say that the funding companies that make such offers are bad. They can be reputable operators who provide valuable service. However, most payroll-funding shoppers signing up for these programs do not comprehend how their cash will flow through the funding company.

Why don’t business finance lenders fund a "true" 100% of a staffing agency’s accounts receivables on a continuing basis? What are the needs for a personal guaranty, or major controls over your business and accounts when a personal guaranty is lacking?

The risk in payroll funding--financing a staffing agency’s accounts receivables is extremely high:

• The security or collateral for the loan is only paper-- invoices and timecards. If something goes wrong, staffing agencies do not have heavy equipment, inventory, etc. to lien and liquidate.
  
  
• The IRS has “super priority” liens that can, under certain circumstances, get ahead of a payroll financing company. The funding company can quickly be out of pocket for tens or hundreds of thousands of dollars.
  
  
• Fraud, embezzlement, and other white collar crimes are widespread.
  
  
• Most staffing agencies are not well capitalized.
  
  
• Legal costs are too high and the court systems are much too slow to fix problems cost effectively.
  
  
• Credit is too fast of a moving target and much of the credit data available these days is undependable.

Lastly, a funding company’s own investors and/or banks usually don’t approve of their funding company partner or customer lending a true 100% to staffing agencies.

A handful of companies in the staffing payroll financing industry still advertise 100% funding. The wording in such offers includes phrases such as:

• 100% funding of gross receivables
• 100% unlimited funding with no reserve
• 100% payroll funding
• Advances of up to 100% of total billings

That payroll funding companies or factors really fund a true 100% on an ongoing basis is inaccurate. Although there are a number of techniques, the most common method for funding companies to take an effective reserve is to hold your weekly incoming profits or a portion of your customer collections for a week, or a few weeks, all during the year. The holds on your cash will never be referred to or defined as "a reserve". The terminology or advertising message generally provides that the funding company pays profits to you weekly.

The catch is that the monies/profits that are being paid to you this week are your profits from one, two, or even three weeks back in time. They hold monies until they give them back to you on a specified day of the week (specified by the funder), and the contract language usually provides that all or some of these monies sitting with the staffing payroll funding company can be adjusted, offset, applied or reapplied (to the loan, accounts receivables balance, any account or invoice, small reserve etc.) anytime at their discretion, without your approval. The legal effect is "a reserve."

There are many other controls or offsets used to protect the payroll financing company in so-called 100% funding. These are the same lender protections used to provide payroll funding without a guaranty.