The Challenge of Financing Growth in Staffing
Many staffers have the good fortune of winning deals. They are great recruiters and can fill orders efficiently. However, the big question becomes: how do they finance it if the client requires 60 days to pay the first invoice? This is where payroll funding drives growth—by providing the capital needed to fulfill contracts without delay.
The Impact of Slower Payments
On the other hand, what happens if payment trends begin to slow? In that case, staffers will need even more money to finance the same amount of business.
Why Unlimited Funding Matters
In my 30+ years in the business, I’ve found that the best way to scale a staffing business is by using a staffing-specific lender that offers unlimited funding.
Financial Flexibility Unlocks Rapid Growth
In fact, unlimited funding allows staffing companies to scale rapidly by eliminating cash flow constraints tied to contractor payroll. With this kind of financial flexibility, a staffing company can onboard and pay unlimited contractors without having to worry about delayed client payments.
Profitability at Scale
For example, a staffing company limited to $2 million in revenue at a 17% profit margin generates $340,000 in profit. However, with unlimited funding, it could scale to $10 million in revenue—even at a slightly lower 15% margin—resulting in $1.5 million in profit. That’s over four times the original amount.
Highlight:
Limited Financing
(Self or Bank)
Gross Profit: $340,000 (17% GM)
Annual Sales: $2,000,000
Unlimited Payroll Financing
(Staffing Specific Lender)
Gross Profit: $1,500,000 (15% GM)
Annual Sales: $10,000,000
The Hidden Costs of Slow Payment Cycles
Clearly, the cost of financing is covered by the increased revenue and profit, making it a self-sustaining growth model.
Additionally, delayed invoice payments can create severe cash flow issues. A company billing $10 million annually with a 35-day DSO has $1,000,000 tied up in accounts receivable. If that DSO stretches to 42 days, the outstanding A/R balance increases to $1,400,000. As a result, without sufficient cash reserves, the company must finance the $400,000 gap, which can strain operations and limit growth.
Highlight:
(Self or Bank)
DSO 35 days
Annual Sales: $10,000,000
$1,000,000 needed to support $10mm
(Staffing Specific Lender)
DSO 42 days
Annual Sales: $10,000,000
$1,400,000 needed to support $10mm
The Path to Sustainable Expansion
Ultimately, with an unlimited funding program, staffing companies no longer need to slow hiring or restrict client acquisition due to cash flow concerns. Instead, they can focus on expanding contracts, increasing placements, and driving profitability without unnecessary financial roadblocks. It’s a clear example of how payroll funding drives growth when used strategically.
Check out our Youtube short on the impact unlimited payroll funding can have on your staffing firm.
Explore our website to find more staffing insights. Madison Resources is the premier payroll funding and back office support partner to the staffing industry. Grow with confidence.