The employee pay cycle in the staffing industry have increased significantly in the past few years. The pandemic has also paid its part, but the pay cycles were on the rise even before. The average pay cycle for staffing firms used to be 30 days, which has now extended to 60 days and, in some cases, even 90 days. It has to be said that the staffing industry is growing quite rapidly in every corner of the world, but at the same time, this growth isn’t converting into cash flow on an immediate basis due to this increase in the pay period.
As a result, staffing firms cannot fulfil their payment commitments and cover additional expenses. Consequently, the employee pay cycle for staffing firms is also increasing, which is a worry, considering the financial uncertainty that employees are already facing due to the pandemic. A surprising trend amidst all of this is that larger companies tend to take more time to release the payment to their staffing partners. So, it seems that business growth for staffing firms is only on paper because they are still facing cash flow problems that they used to, earlier as well.
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As alluded to earlier, one of the biggest challenges for staffing firms regarding payment terms is the constant rise in the pay cycle. There was also a time when it used to be just 15 days, which increased to 30 days. And now the pay cycle has increased to anything between 60-90 days, which is a real concern that needs to be addressed as quickly as possible.
Staffing companies deal with clients that differ in terms of their size, business type, and industry. However, working with a larger company has its challenges. Often, they have longer payment terms. So, staffing firms, in some cases, have to wait for as long as three months to take care of their payroll, which is usually done on a fortnightly or monthly basis. The usual trends go like this – the more employees a company has, the longer it takes to clear its staffing firm’s payment.
Staffing firms can work out the payment terms before getting into a professional relationship with any company. The focus should always be on working with clients who can clear the invoices in minimal time. Working with companies with longer payment terms results in the extension of the employee pay cycle of staffing firms, which is not a good thing for their reputation and employee satisfaction.
In most parts of the world, the staffing industry is faring better than most other industries that the pandemic has badly hit. To not let payment terms hamper cash flow, they should work with partners who can help them with customized financial solutions to meet their specialized needs. Working with companies that have a longer pay cycle will no longer be a problem if they know how they can generate payroll with the help of their payroll funding partner.
Reference: Increasing Pay Cycle Terms and the Effects on Staffing | Advance Partners | Jeremy Bilsky
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