Payroll Funding

Written by the NextCrew team

Staffing payroll funding exists because of one timing gap. An agency pays its Crew Members every week, but clients pay invoices on 30, 45 or 60-day terms. Every new client and every extra shift widens that gap before it earns anything. Payroll funding for staffing agencies closes it by turning approved invoices into cash now.

Why do staffing agencies need payroll funding?

Because payroll goes out long before client payments come in, and growth makes the gap bigger, not smaller. A profitable agency can still run out of cash. The money is owed to it; it just has not arrived yet.

Illustrative example: 40 Crew Members working 38 hours at $20.00 an hour is $30,400 of weekly pay. Add burden at an assumed 20% and each weekly payroll costs about $36,480. On net 45 terms, six or seven weekly payrolls go out before the first invoice is paid: roughly $220,000 to $255,000 of cash out before the first dollar comes back. Win a second client that size and the gap doubles.

Illustrative numbers, not a benchmark. Your pay rates, burden and client terms set the real figure.

How does payroll funding work?

Most payroll funding for staffing agencies is factoring, and it runs in six steps.

1. 1
   The funder underwrites your clients

   Because repayment comes from your clients, the funder checks their credit as much as yours. That is why a young agency with strong clients can often qualify.

2. 2
   Crew Members work and timesheets are approved

   The funder wants proof the hours happened and the client accepted them.

3. 3
   You invoice the client and submit the invoice

   Usually with the approved timesheets attached, through the funder's portal.

4. 4
   The funder advances most of the invoice

   The advance rate and timing are set in your agreement. Payroll gets paid from it.

5. 5
   The client pays the funder

   Clients are normally notified to send payment to the funder's account.

6. 6
   The funder releases the rest

   The remaining balance (the reserve or rebate) comes back to you, minus the funder's fee.

Factoring vs a line of credit vs payrolling

See payrolling for how the back-office model differs from funding alone.

What does payroll funding cost?

Factoring fees are quoted as a percentage of the invoice for each period it stays unpaid, so slow-paying clients cost more. Read the agreement for the rest of the price: application or setup fees, wire fees, monthly minimums, termination fees and any charge for invoices that age past a cutoff.

Illustrative example: a $50,000 invoice, a 90% advance ($45,000), and a fee of 2% per 30 days charged pro rata. The client pays on day 45, so the fee is 3%, or $1,500, and $3,500 comes back to you. If that invoice carried a 17% gross margin ($8,500), the fee just took about 18% of the margin.

Illustrative, not a quote. Funders price on your volume, client credit and terms.

What do funders check before they fund an agency?

• Client credit. Who owes the money matters most.
• Verifiable invoices. Approved timesheets and clear bill rates. A disputed invoice is one the funder will not advance on, or will charge back.
• Concentration. How much of your volume sits with one client.
• Payroll taxes. Unpaid payroll taxes can create liens that take priority over the funder, so they will check.
• Deductions. VMS and program fees taken off the invoice reduce what the funder actually collects.

Where agencies get payroll funding wrong

• Signing for volume they do not need. Long terms and monthly minimums cost money in slow months.
• Funding every invoice by default. A client who pays in two weeks may not need funding at all.
• Ignoring the fee inside the margin. The fee comes out of the spread between bill rate and pay plus burden. On a thin-margin client it can take a large share.
• Sending invoices that invite disputes. Missing approvals and wrong rates slow the advance and trigger chargebacks.
• Letting payroll taxes slip. It puts the funding line itself at risk.

How NextCrew handles the invoices funders rely on

NextCrew is not a funder and does not advance cash. What it does is produce the kind of invoice a funder will advance on without questions:

• Invoices from approved timesheets. Batch invoicing groups approved timesheets by client and applies each client's billing rules, so rates and hours come from the record, not re-keying.
• Client approval on record. Clients can approve or decline timesheets in their portal before anything is invoiced.
• Invoice snapshots. When an invoice is created, NextCrew keeps a snapshot of its timesheets, so later edits never change a sent invoice.
• Proof attached. Timesheet attachments, such as signed approvals, can be included with the client invoice automatically.
• Collections view. Receive Payment updates each invoice, and the AR aging report buckets what is current, 1 to 30, 31 to 60 and 61 to 90 days out.

See how it works on the staffing invoicing software page.

Frequently asked questions

Related terms

• Payrolling: a provider funds and runs payroll, sometimes as employer of record.
• Gross margin: what is left of the bill rate after pay and burden, and where funding fees come from.
• Bill rate: what the client is invoiced per hour.
• Burden rate: the employer costs on top of pay that payroll funding also has to cover.
• Program fee: a deduction from the invoice that reduces what a funder collects.
• Earned wage access: paying Crew Members early from earned wages, a different cash question.
• Accounts receivable aging: tracking which client balances are getting old.

General information, not financial or legal advice. Compare funding agreements with your accountant or attorney.