BankingReceivables Funding a Plus for Employment Plus Staffing Agency
With ever-increasing revenues, one may find it difficult to fathom how a growing company can encounter cash flow issues. For Employment Plus, a privately held, Bloomington, Ind.-based staffing company, however, the more than 400 percent sales increase in four years brought on a new set of growing pains, one that many young, thriving firms experience.
Just five years ago, Employment Plus reported revenue of $11 million by providing local companies temporary employees from six locations in south central Indiana. This year the company operates 16 branches in Indiana and Kentucky and projects 2006 billings to total more than $53 million.
Most banks will not lend money to companies in such a growth mode. Even human resource solutions firms such as Employment Plus, which has an impressive portfolio of clients and a history of good service over the past 14 years, may not qualify. Often high growth businesses must turn to accounts receivable funding sources for their cash flow needs.
Receivables funding has allowed Employment Plus to thrive as it has done the past several years. "We have weekly payroll obligations," said Mike Testy, vice president of finance and administration for Employment Plus. "And even though we invoice our clientsthose who need temporary employeeson a weekly basis, most on average do not pay for 37 days."
A burgeoning payroll isn't the only financial obligation for an expanding company like Employment Plus. From real estate costs to tax obligations and IT equipment acquisition, cash flow funding solutions are key elements that some lenders cannot or will not provide.
Accounts receivables or factoring companies assess their client's credit based primarily on their invoices and provide them the cash flow they need to continue their expansion efforts and meet day-to-day business expenses.
Accounts Receivables Funding
Receivables funding, often referred to as factoring, is more flexible and quicker than a traditional bank loan. "We've been working with a receivables funder for the past four years, and the level of responsiveness and receptivity is fantastic," said Testy. "We had a $4 million funding facility since October 2005, but at that time, many of our clients were hiring more temporary staff, so we knew our payroll obligations would increase." Based on Employment Plus's client portfolio, this credit line was increased to $5 million, and it has since increased to $10 million.
Studies show that using non-bank sources such as factoring for financing is not uncommon. The Federal Reserve released statistics in October 2006 that show a strong increase in the number of small businesses seeking funding from these sources. "Between 1998 and 2003, the incidence of non-depository use by small firms increased from 40 percent to 54 percent," according to a summary of the survey. In 1987 that number was 25 percent.
Using factoring has additional benefits for Employment Plus. "When we do have a new large-volume client, our receivables funder works with us on the front lines to assess the creditworthiness of the business," added Testy.
Employment Plus's growth has not gone unnoticed. The Sept. 29, 2006, issue of the Staffing Industry Report ranked Employment Plus 11th in its list of "America's Fastest Growing Private Staffing Companies."
Factoring is also growing, helping companies like Employment Plus meet their financial obligations. Because of peaks and valleys in the temporary personnel needs of companies, staffing firms can benefit greatly from the cash flow funding of factors.