Everything below is a representative deal structure written for teaching, not a specific client file. The staffing agency is a composite, the 45-day terms are typical rather than reported, and every dollar figure was chosen so the arithmetic stays easy to follow. Nobody here is a client and no offer here was made to anyone.
It is published in this form because the reasoning transfers and the numbers never would. Terms vary per deal, and what a funder offers depends on the file in front of them, so a single true story would teach the wrong lesson with unearned authority.
The situation, as constructed
Suppose a light-industrial staffing agency, three years old, with 48 contractors on assignment. Weekly payroll including taxes and burden runs about $46,000; weekly billings run about $76,000, so the gross spread is about $30,000 a week. Clients pay on net-45, and between the week worked, the invoice going out and the check arriving, roughly seven weeks pass between paying a worker and collecting for that work.
Seven weeks of payroll is about $322,000, carried on retained earnings. Then the agency wins a contract for twelve more contractors. Payroll rises by about $11,500 a week, billings by $19,000, and the float grows by roughly $80,500 before the first new invoice pays. The reward for winning is a hole.
The number asked for, and the number needed
The owner calls asking for $150,000 of working capital. That is the wrong shape of question, because the gap is not an amount, it is a permanent and growing structure: fund $150,000 today and the float still grows every time the agency wins. Mapped week by week in the cash flow gap calculator, it is not a shortfall to plug once but inventory carried as other companies' payables, and the products built for that are structural rather than episodic.
What the file looked like
The receivables and the payroll discipline are excellent. Concentration is the risk, and the line that changes what several funders say, because a funder lending against this book inherits those two clients' credit whether it wants to or not.
- Time in business: three years, profitable, no outside capital.
- Receivables: about $530,000 outstanding, aging clean, almost nothing past 60 days.
- Concentration: two clients account for most of the book.
- Bank behavior: payroll clears every Friday, deposits arrive in monthly lumps, and the account runs thin the week before the largest client pays.
- Existing debt: a small equipment lease, nothing else.
- Credit: personal score in the low 700s.
What each funder underwrites
- A factor or payroll funder underwrites the agency's clients more than the agency. It verifies timesheets and invoices, runs credit on the account debtors, files on the receivables, and caps how much of the book one client may represent. That cap is where concentration bites: part of a clean book sits outside the facility.
- A revenue-based advance funder underwrites deposit history and account behavior. It notices that inflows are monthly lumps rather than daily volume, which makes a weekly debit less comfortable than the deposit total suggests.
- A receivables line of credit underwrites the whole entity: statements, tax returns, a borrowing base recalculated against the aging. Cheapest of the three, and the most demanding to obtain, which is why agencies graduate into it rather than start there.
- The client itself is the funder nobody asks. Shorter terms, weekly invoicing, or a deposit against the first cycle fund the same gap at no cost, and a client that has just signed is at its most receptive.
Three structures, with the arithmetic
Set that cost next to what the book earns. The gross spread is about $30,000 a week and factoring takes about $3,116 of it, so roughly one dollar in ten of gross margin buys the ability to make payroll while clients take 45 days. That is how to read a factoring quote: against the spread the agency keeps, not against revenue that is mostly other people's wages.
- Factoring the book. Suppose an invented schedule: 85 cents advanced on each approved invoice dollar, a fee of $0.025 per dollar for the first 30 days and $0.008 for each 10 days after. A 45-day payment costs about $0.041 per dollar, which on $76,000 of weekly billings is roughly $3,116 a week, or $162,000 a year. Entered into the offer comparison tool as $76,000 funded against $79,116 repaid over two months, our example normalizes to $0.04 per dollar and an annualized figure near 24.6 percent.
- A revenue-based advance of $150,000 at a 1.28 factor, estimated ten months, weekly remittance. The MCA calculator returns $192,000 of payback across 43 weekly payments of $4,465.12, a cost of $42,000, and in our example an annualized cost near 33.6 percent.
- A receivables line of credit. Suppose an invented all-in cost of about $0.11 per dollar per year on the drawn balance: on a $300,000 average draw that is roughly $33,000 a year against $162,000 for factoring the same book. The qualification bar is why it is not the answer.
Why the advance is the wrong shape
The $150,000 advance funds the gap and then unwinds it. Forty-three weekly payments retire the money over ten months, at the end of which the float is still there and larger, because the agency kept winning. The next step is a renewal, and renewals stacked on renewals are how a structural gap becomes a compounding cost, as MCA renewals and when to refinance sets out.
There is also a rhythm problem. A weekly debit of $4,465.12 lands on an account whose inflows arrive as monthly client payments, so it must survive the thin week before the largest client pays, not the average week. Advances fit staffing in one place: a one-time cost such as onboarding and equipment for a new contract, where the money buys something that ends. Funding a permanent float with a product that ends is the mismatch.
The denominator problem
This is where a pass-through business fools its own tools. Monthly billings are about $329,000, and the advance converts to roughly $19,349 a month. Entered that way, the payment affordability checker reports total debt service near 6 percent of revenue in our example and calls it comfortable, which is nonsense: most of that revenue is spoken for as wages before the agency touches it.
Enter the gross spread instead, about $130,000 a month, and the same payment lands near 15 percent in our example, in the band the tool calls workable with a thin margin. Same deal, same tool, two verdicts, and the second is the true one. A pass-through business should feed these calculators the money it keeps.
The case for taking nothing
The no-financing version is real: staff six of the twelve positions and grow inside the cash the agency has. Each contractor not placed costs about $625 a week of gross spread in this invented file, so deferring six for a quarter forgoes roughly $48,750. Financing all twelve through factoring costs about $779 a week, near $10,127 for the quarter. Paying $10,127 to capture $48,750 is the arithmetic that makes financed growth normal in this industry rather than a sign of trouble.
That flips on two things. If the spread is thin, financing costs eat the margin the growth was meant to produce. If the new client pays slowly or its credit is weak, the agency has bought risk rather than revenue, and the funder's view of that client is free due diligence.
The cheapest option remains the unbought one: asking the new client for net-15 for the first ninety days funds part of this gap for nothing. None of the structures above is a prediction. Providers underwrite independently, terms vary per deal, and the numbers that matter are on your own file.
Frequently asked questions
Are these real terms from a real staffing deal?
No. This is a representative deal structure with an invented agency and invented figures, published to show how the decision is reasoned rather than to report anyone's outcome. The transferable part is the sequence: map the float, price each structure against gross spread, and match the product to the shape of the gap.
Why is factoring so much more expensive than a line of credit here?
Because the two price different things. A factor buys individual invoices, verifies them, collects them and carries the credit work, charging per invoice for as long as you factor. A line charges only for the balance drawn and leaves collections to you, which is cheaper and requires the reporting, history and diversification that let a lender underwrite the whole entity at once.
Should a staffing agency ever use an advance instead of factoring?
For a defined, one-time cost, yes. Onboarding a contract, recruiting and equipment are expenses that end, and a product that ends can match them. The mismatch is funding the payroll float itself, which is permanent and grows: the advance retires while the gap remains, and the next move is a renewal that costs more than the structural product would have.