Payroll for your placed workers leaves the account every Friday. The invoice for those same hours goes out Monday, on net 30 terms, and the collections data says the money actually lands around day 42. Everything hard about a staffing agency’s books lives between those two dates.
I see this file every month, and it is rarely a bad business. It is usually a good agency growing faster than its own collections can fund. The margin is real. It is just seven weeks away.
Count the Fridays before the first check
Take an agency placing 20 light industrial workers at an $18 pay rate, 40 hours. That is $14,400 in gross wages every week, and wages are only part of what leaves before the client pays anything:
- the employer share of Social Security and Medicare, 7.65% on top of every wage dollar
- state unemployment tax on each payroll run
- workers comp premium, priced per $100 of payroll, owed whether or not the client has paid
- the payroll service’s per-run fee
Call the weekly all-in $16,000. Bill those hours at $27 and the invoice is $21,600, so the spread is healthy on paper.
Now the calendar. Staffing terms usually read net 30, and the industry’s average collection time runs about 42 days from invoice to cash. Week one’s invoice goes out Monday of week two and pays, on average, around day 50 of the engagement. You will have run seven payrolls by then, about $112,000 at this headcount, before the first dollar comes back.
That number is the float, and it scales one for one with growth. Double the placements and it becomes $224,000. This is why agencies stall in their best quarters, not their worst ones. Each new placement adds payroll this Friday and revenue seven weeks out.
The two plays, costed
Invoice factoring is built for this shape. You sell the invoice, collect 80 to 95% of its face within about 24 hours, and get the remainder, minus the fee, when the client pays. Approval rides your client’s credit rather than yours, so a year-old agency billing a national logistics company can qualify on its client’s name. The facility also grows as your billings grow, no reapplication.
The cost is real and worth saying plainly. Fees run roughly 1 to 5% of invoice value per 30 days. At 2%, a $21,600 invoice that pays on day 42 costs about $600, and run weekly that is close to three points of revenue, more when a client drags to 60. One naming trap: a factoring fee is not an MCA factor rate, the math works differently, and factor rates explained is worth a read before comparing quotes.
The other play is a line of credit, and the mechanics are in how a business line of credit works: interest only on what you draw, roughly 7 to 25% APR. At mid-range pricing, carrying this float on a line costs less per year than factoring it. The catch is the box: 650+ credit, a year or two of history, and a limit underwritten to your financials, not your client’s. A two-year-old agency carrying a $112,000 float may see a $50,000 approval. Fine for a timing gap. Thin for doubling headcount.
Which would I take? Under two years in, or growing faster than the last tax return can justify, factoring: the limit is your book of invoices and it scales the week you scale. An established agency with steady headcount takes the line for the price. Plenty of files end with both, the line for the odd week, factoring for the growth. When the need is discrete and urgent (a deposit on a second office, upfront costs on a contract that starts Monday) an advance against deposits can fund in 24 to 48 hours. That answers speed, not the standing gap.
What the factoring file needs
Factors move fast when the paper is clean. Worth checking before you apply:
- invoices billed to businesses or government, due inside 90 days
- signed timesheets or client approval behind every invoice
- an aging report that matches what the invoices say
- receivables free of existing liens, or a plan to pay off or subordinate whatever filed first
That last one catches people. Earlier financing that filed a blanket lien sits ahead of the factor, and the deal waits until the lien is released or subordinated. Sequence matters if factoring is anywhere in your plans.
Setup runs three to seven business days the first time. After that, new invoices fund within a day, and Friday payroll stops depending on day-42 cash.
None of this makes the float disappear. It comes with selling labor weekly and collecting around day 42. At double the headcount it is double the size. The agencies that grow through it priced it early, next to wages and comp. Even if funding is not on the table this quarter, the float math is worth running before the next big placement, not after.