Increasing Pay Cycle Terms and the Effects on Staffing

If 2016 was a year of big changes and economic uncertainty, 2017 is shaping up to be even more so. One area where staffing agencies might see that uncertainty play out in the next year is a trend towards increased payment terms from net 30 to 60 or even 90 day cycles.

Although staffing as a whole is growing with 68% of firms  expected to grow and 79% likely to see an increase in the volume of candidates placed, in this industry, increasing business doesn’t translate immediately into cash flow to cover payroll and other expenses. [more] Plus, larger companies on average have longer payment terms. Just because business is looking good doesn’t mean staffing companies aren’t facing unique cash flow challenges.

Moving from Net 30 to 60-90 Day Terms

It would be ideal for staffing agencies if every client paid in net 15 or 30 terms, but in the current uncertain economy, many companies are increasingly stretching invoice payments to 60 days or even longer. According to a Staffing Industry Analysts study*, in 2013, the median time to payment for staffing firms was 35 days – but for some, that number is going up sometimes as high as 90 days. Some firms are reporting that cash flow came to a halt in 2016, and they are seeing pay cycles move from 30 days to 60 or 90 days.

Large Companies Take Longer to Pay

Most staffing firms have a wide array of customers, varying in size, industry positioning and business type. Often, taking on a larger customer means accepting longer payment terms – which means a longer time to wait to cover payroll, which is often done weekly or bi-weekly. According to the same SIA study mentioned above, buyers with 10,000 employees or more take 45 days on average and 100,000+ employees take more than 45 days to pay.

This was a challenge faced by a Clerical/Administrative staffing client who had the opportunity for a contract with the government. “We had just acquired a new contract with the state government. One of the biggest concerns we had was payment, because with the government and the state, the concern is how quickly they’ll be able to pay the invoices.

Advance was able to work with this client and ensure they had the working capital necessary to be able to take on the big contract. “That was a big deal when we brought this in, it was a huge contract. There was a comfort level that Advance was going to be able to back me up and support me and make sure it’s a profitable opportunity.  It was a huge piece of business and Advance made me feel really good about it, I don’t worry about it or lose sleep over it.

How Staffing Firms Can Keep Up with Payroll

Although economic uncertainty is high, the staffing industry is still growing as a whole and outpacing the economy. Advance Partners specializes in helping growing staffing firms, so they never have to turn business away, no matter the payment terms. When you know you can make payroll, waiting 60 or 90 days for payment is no longer an issue.

If you’re being held back by the gap between accounts receivable and money in the bank, talk to us today. Our specialized solutions and industry expertise can help.

Why Staffing Firms Should Outsource Payroll

 

*Note: Only Staffing Industry Analysts members can see the report