Why does an economic slowdown increase Days Sales Outstanding (DSO) for staffing agencies?

During an economic slowdown, your clients begin to conserve their own cash, which often means they stretch payment terms with their vendors—including you. They may shift from paying at 30 days to 45 or 60 days. Additionally, their internal accounts payable departments may become stricter, scrutinizing invoices more closely and causing delays over minor discrepancies. This combination of intentional payment stretching and increased administrative friction means it takes longer, on average, for you to collect your receivables, which directly increases your DSO.

How do MSP and VMS programs impact a staffing firm’s cash flow during a market downturn?

MSP and VMS programs amplify the negative effects of a downturn. These programs already operate on long payment terms (Net 45-90) and have rigid, automated billing rules. During a slowdown, there is zero tolerance for error. A single mistake on an invoice—a wrong PO number, an incorrect rate, or missing documentation—will trigger an automatic rejection. This forces you to correct and resubmit the invoice, effectively restarting the payment clock and stretching your cash flow even further at a time when you can least afford it.

What is the difference between payroll funding and a traditional bank line of credit for recruiters?

Payroll funding (also known as invoice factoring) is not a loan; it is the sale of your accounts receivable. Your funding is based on the value of your invoices and the creditworthiness of your clients. This makes it highly scalable—as your sales grow, so does your access to capital. A bank line of credit is a loan. Your borrowing ability is based on your company's financial history and collateral, and it comes with a fixed limit. To increase that limit requires a new underwriting process, which can be slow and is not guaranteed, especially during a downturn.

How much working capital does a staffing firm need to float weekly payroll safely?

There is no single dollar amount, as it depends entirely on your weekly payroll size and your average Days Sales Outstanding (DSO). A conservative rule of thumb is to have enough cash reserves to cover at least 10-12 weeks of full operating expenses, including gross payroll and all associated costs. This provides a buffer for a 60-day collection cycle plus a few extra weeks for unexpected delays. The goal is to have enough working capital to comfortably bridge the entire gap between paying your employees and collecting from your clients.

What are the warning signs that a staffing agency is heading toward a payroll crunch?

The warning signs usually appear weeks before the crisis hits. You should be concerned if you notice: Your Days Sales Outstanding (DSO) is consistently increasing month over month; Your accounts receivable aging report shows a growing percentage of invoices in the 60+ and 90+ day buckets; You start 'timing' payments to your own vendors to manage your bank balance; You hesitate or decline a promising new client because you are worried about your ability to float the payroll; Your leadership team is spending more and more time on collections and cash flow management instead of sales and recruiting.

What You Need to Know About California Senate Bill 1032 – the SAFE Act (SB 1032)

Elle Jackson

Last time updated: June 15, 2026

California Senate Bill 1032, also known as the Staffing Agency Fair Employment (SAFE) Act, introduced by Senator Eloise Gómez Reyes, aims to create a statewide registration system for all temporary staffing agencies. The central requirement is that firms must register with the Labor Commissioner and provide proof of valid workers’ compensation coverage. While the industry supports this goal in principle, the bill contains several provisions that could create significant burdens for legitimate operators. The bill has already passed the Senate and is now making its way through the Assembly.

To understand the bill’s implications, we spoke with Toby Malara, Vice President of Government Relations at the American Staffing Association (ASA). He explained that the challenges for California staffing firms go well beyond simply verifying their insurance.

“The burden isn’t just the registration itself—it’s the confidential information you have to share, the risk of new lawsuits, and the potential competitive disadvantage if PEOs and EORs aren’t covered under the same rules. If those firms don’t have to get workers’ comp coverage, there is suddenly a cheaper alternative that may not be legal, but it will still affect the staffing firms doing things the right way.”

How ASA is Handling It

ASA, in close partnership with its state chapter, California Staffing Professionals (CSP), is actively engaged in lobbying and educating state lawmakers. While ASA supports the bill’s core goal of ensuring all agencies carry workers’ comp insurance, Malara clarifies that the association is opposed to the bill as written due to several problematic provisions. In a recent letter to the California Assembly, ASA made their position clear:

“The staffing industry supports the goal of SB 1032 to address workers’ compensation abuses by non- compliant staffing agencies and clients. The current proposal, however, would barely touch the broad range of workers’ compensation abuses by the bad actors. Instead of imposing an additional, duplicative, regulatory framework, the Departments of Industrial Relations and Insurance should be given the resources needed to identify and prosecute the full scope of problematic activities through increased enforcement of existing laws.”

ASA has proposed a series of amendments designed to make the bill more fair and workable without deviating from its primary objective. These changes aim to address concerns around the exclusion of PEOs/EORs, the broad scope of the private right of action, the disclosure of sensitive business information, and the ambiguity in the registration renewal process that could leave compliant firms in legal limbo.

ASA’s California lobbyist Mike Robson of Edelstein, Gilbert, Robson and Smith and CSP members have been meeting directly with lawmakers to explain the unique nature of the staffing business model and advocate for these crucial fixes.

What California Staffing Firms Need to Do Now

Assuming the bill passes in some form, preparation is key. Malara advises firms to take proactive steps now to ensure they are ready.

Confirm Your Workers’ Comp Coverage. First, ensure your workers’ compensation coverage is adequate and will meet the bill’s criteria. Reach out to your insurance carrier to review your policy and confirm you will be in compliance.
Prepare for an Intensive Registration. Second, begin preparing for an intensive registration process. Start gathering the required information now, such as the names and addresses of all individuals with a 5% or greater ownership interest, and anticipate the need to pay a fee or post a bond once the commissioner sets the amount.
Be Ready to File Immediately. Finally, be prepared to file your application as soon as the system goes live. Since all firms will theoretically be “unregistered” on day one, filing early is the best way to minimize the risk of a compliance gap while your application is pending.

Malara says one of the best things staffing firms that do business in California can do is stay in the loop with updates.

“Stay in touch with either CSP, ASA, or both, and make sure that you’ve got the latest information so you’re ready to go if and when this requirement goes into effect.”

Thank you Toby Malara for your insight on this topic. To learn more about ASA’s government relations efforts, visit https://americanstaffing.net/legal-2/

Please note: This communication is for informational purposes only and does not constitute legal advice. Staffing firms should consult with their legal counsel to understand their specific obligations.