Accounts Receivable Collection Ties to Payroll Funding
Your Invoice Collection efforts are tied to funding in numerous ways:
- Depending on which or whose payroll funding program you are on, amounts over 60 or 90 days will usually be charged back to you or taken out of your borrowing availability. If you don’t collect, the amount of funding will be less.
- Most payroll funding programs track how long invoices take to get paid and charge fees and/or interest based upon how quickly they pay. If collections lag you pay more.
- When customers pay their invoices, even invoices under 60 days, it makes some portion of the invoice payments available to you. This portion of the payments may be referred to in payroll funding or temp agency factoring contracts as profits, collections, reserves or adjustments. If you don’t collect from your customers, these payments to you are lessened.
Nearly every factor or payroll funding company offers “professional” collections assistance, but that’s not always a good thing. One of the reasons Flexible Funding got into the staffing payroll funding business was because of collections experience; our CFO/Principal had been the controller of a large staffing agency that utilized a funding company–a funding company that destroyed delicate customer relationships with unnecessary heavy-handed collections.
If your finance partner is a “factoring” company that funds other businesses besides staffing agencies, they may treat your staffing clients like a trucking firm, apparel manufacturer, or other similar organization that requires, or are used to, very aggressive tactics. Or, when the payroll funding company are “staffing” specialists but their collections personnel have come from a completely different industry than staffing (possibly even the collections industry itself), they will sometimes destroy important customer relationships. If a payroll funding company collector is following up on slow pays (not bad-debt pays) of a valuable continuing customer, know that a person with the wrong background can lose your firm customers by using the wrong tactics at the wrong points in time.
Flexible Funding Payroll Funding collections assistance, when requested, is tailored more for specifically for staffing than most other payroll funding organizations. These services are free, value added and optional. They are advanced in the following ways:
- John Villanueva who runs our collections department comes from our industry, the staffing industry. He spent years at staffing agencies as a Recruiter and in Sales. He knows what it takes to build staffing relationships and therefore knows how to collect without destroying them.
- Flexible Funding’s state-of-the-art web based collections systems let you follow or participate, if desired, in any or every stage of collections. You can stay involved and tag team with us if you choose. Many people like this better than losing complete control. Or you may handle collections yourself.
- Flexible Funding may help to provide secured-credit status with your customers. A staffing company performs a service, bills the customer with invoices, and within weeks or months the customer remits payment. Basically, the staffing agency and its payroll funding company, bank or investors are giving the customer an unsecured line of credit or an unsecured loan for the services provided. If the customer ever pulls a bankruptcy an unsecured creditor such as a staffing agency will usually be left holding an empty bag and collect nothing. Because a staffing agency is not providing a product, and provides a service, there is nothing it has provided to repossess. And any assets of the bankrupt client that can be sold such as inventory, furniture, equipment and real estate will be sold to satisfy the secured creditors.
- One of the reasons a temporary staffing agency may turn to payroll financing or payroll funding in the first place is because of collection problems and / or bad debts. Collections efforts may be unnecessary if you pay attention to credit red flag warning signs and react early enough to them. This may eliminate the need for funding altogether, or in some payroll funding programs (such as Flexible Funding’s) allow you to borrow less. This list of Credit Red Flags is by no means exhaustive, and suggestions for additional warning signs are welcome by e-mail / social media.
In some cases, when first going into a deal, it is possible to elevate your status to that of a secured creditor rather than an unsecured creditor. You may want to consider this when a customer represents a concentration for your business. If the customer ever files for a bankruptcy you will likely collect something along with the other secured creditors, rather than holding an empty bag. Flexible Funding’s payroll funding team can teach staffing agency management how to become a secured creditor and help to perfect your security interest at no cost to you.