Payroll Funding for Staffing Agencies: How It Works, Week by Week

Staffing is one of the few businesses that pays for its biggest cost before it bills for it. Payroll and payroll taxes go out every week. The client invoice for those same hours gets paid weeks later. The faster you grow, the bigger that gap gets, because every new placement adds payroll right away and revenue only later.

Payroll funding is the staffing industry’s name for factoring those invoices. You invoice your client for approved hours, sell the invoice to a factoring company, and receive most of its value the same day. The client pays the factor on its normal terms, and the factor sends you the rest, minus its fee.

Payroll Funding Is Not a Payroll Service

The term causes confusion because some companies use it for two different things.

Sigma does the first. We fund your invoices; you keep running payroll your way.

A Week-by-Week Example on Net 45

Here’s one week of hours for a new client that pays on Net 45. The figures are hypothetical, not an offer, and they match the payroll example on our staffing page.

Without funding, this agency would cover six Friday payrolls, $111,000 in all, before the client’s first payment arrived. With funding, each week’s invoice pays for that week’s payroll, and the gap doesn’t grow as the contract does.

What Qualifies

Payroll funding works on invoices for work your people have already done for a business client.

• Temporary and contract staffing. Light industrial, clerical, IT, healthcare, security guard and other placements billed by the hour or shift. W-2 and 1099 workers both qualify.
• Healthcare staffing billed to facilities. Invoices to hospitals, clinics and care facilities qualify. Bills paid by health insurers, Medicare or Medicaid don’t. See our guide to healthcare staffing factoring.
• Direct-hire placement fees generally aren’t factored, because the fee depends on the hire staying through a guarantee period.

The approval question is about your client. Will this business pay this invoice? We review your agency too, without a hard credit pull, and we don’t pull owners’ personal credit reports or scores.

Proof of Hours

You need your client’s approval of the hours. A signed timesheet isn’t required. If your client approves hours or invoices in an MSP or VMS portal, we verify the invoice there and fund it. That often makes funding smoother and faster than paper timesheets.

Starting Out or Taking On a Big Contract

New agencies can sign before they bill a single hour. We generally look for invoice volume to reach at least $50,000 a month as the agency grows. That’s a growth expectation, not a condition of signing and not a fee commitment.

A large new contract is the most common reason agencies call us. Add 40 workers at $20 an hour for 40 hours a week, and you’ve added about $32,000 of weekly wages, plus payroll taxes, roughly six weeks before a Net 45 client pays. Funding each weekly invoice as you bill it keeps payroll matched to the work.

What Payroll Funding Costs

Your agreement sets a fee schedule by payment period. The longer a client takes to pay, the higher the fee on that invoice. The fee comes out of the reserve when the client pays. There are no setup fees, wire fees or monthly minimums.

On the example above, a $25,000 invoice paid on day 45 costs $881. Our guide to invoice factoring costs shows the fee at 30, 45 and 60 days and how to compare quotes from different factors.

Compare the fee with your margin. At a 25% gross margin, that $25,000 invoice carries $6,250 of gross profit, and the fee to fund it is $881. Without funding, you might have to turn the work down.

How to Compare Staffing Factoring Companies

Most staffing factors advertise similar headline numbers. These questions separate them:

What to Have Ready

Our staffing page lists the documents we ask for, with a seven-item readiness checklist. You’ll need your client list and payment terms, a sample invoice, how each client approves hours, and an accounts receivable aging report if you’re already billing. If you’re moving from another factor, include your current agreement and read our guide to switching factoring companies.

From a Sigma Client

“Before Sigma, payroll kept me up at night. We’re a staffing company, so no matter when clients paid us, our people still needed their check every Friday. There were weeks I genuinely didn’t know if we’d have enough to cover it. Since working with Sigma, that stress is gone. The money’s there when I need it, every time.”

R.S., staffing company, Illinois. $400K in Net-60 invoices funded.

Questions About Payroll Funding

Will my clients know I use payroll funding?

Yes. A Notice of Assignment asks each client to send payments to Sigma. It’s routine for most accounts payable teams, especially at larger companies and MSP programs.

Can I fund only some clients?

Yes. You can submit invoices for the clients you choose. Many agencies fund their slow-paying clients and leave quick payers out.

What if a client disputes hours?

We work with you to resolve it. We handle a dispute about the work itself case by case, and credit insurance doesn’t cover disputed work. Getting hours approved before you invoice prevents most disputes.

Is payroll funding a loan?

No. You’re selling invoices for work already done, so there’s no loan balance or repayment schedule. Funding grows with your billing instead of being capped at a credit limit.