How does payroll funding for a staffing agency work?

Published 2026-10-28 · Timecard Capital · Nothing here is gated and nothing here is an offer.

The problem it solves

A staffing agency is a business that pays other people’s wages before it gets paid for them. Your placed workers are paid every week — wages, payroll tax, workers’ comp — and your client pays you on its own terms, which in staffing means net-30 at best and net-60 to net-90 for hospital systems, manufacturers and anyone paying through a vendor-management system. Every new placement widens the gap. Win a 40-person contract and you have agreed to carry roughly two months of someone else’s payroll out of your own account.

“Payroll funding” is the staffing industry’s name for invoice factoring used to close that gap. It is not a loan against the agency. It is the sale of the invoice itself, so the money arrives when the invoice is raised instead of when the client decides to pay it.

The weekly cycle, step by step

1. Your people work the week. Timesheets are submitted and the client approves them in whatever system it uses.
2. You invoice the client as you always have and send a copy of the invoice, with the approved timesheets, to the funder.
3. Up to 90% of the invoice is advanced within 24 hours. On a $60,000 invoice that is $54,000 in your operating account in time for Friday.
4. Your client pays the invoice on its normal terms — day 30, 45, 60 or 90.
5. The remaining reserve, less the fee, is released to you. On that $60,000 invoice paid at day 45, at an illustrative 2.5% per 30 days, the fee is $2,250 and $3,750 comes back.

Then the next week’s batch goes in. There is no re-application per invoice; the facility sits open and you submit as you bill. The cycle is weekly because payroll is weekly.

What is underwritten

The credit decision is about the client who owes you, not about you. A six-month-old agency with a hospital system on net-60 holds a stronger receivable than a ten-year-old agency billing a dozen small shops. That is why staffing factoring has no minimum credit score and why the minimums are about the invoices rather than the balance sheet.

What it costs

The fee is a discount off the invoice face value, charged for the days the invoice is outstanding. It is not an interest rate on the agency, and it stops accruing the day the client pays. The worked example above — $60,000 on net-45, $54,000 advanced, $2,250 fee, $3,750 released — is at an illustrative 2.5% per 30 days. Your actual rate depends on your clients’ credit, your monthly volume, and whether the facility is recourse or non-recourse. It is set out in the facility agreement before you sign, and nothing on this page is an offer.

The useful comparison is not against a bank rate; it is against what the gap is costing you now: the contracts you turned down because you could not carry the payroll, or the card you put two payrolls on when a client slipped to 95 days.

Notification and recourse, in plain terms

Notification means the remit-to address on your invoice changes so the client pays the funder directly. In staffing this is routine; large employers and VMS programs already pay factors on behalf of many of their agencies, and it does not change the client’s terms. Non-notification structures exist for larger accounts.

Recourse means that if a client never pays, the invoice comes back to you and you repay the advance or substitute another invoice. Non-recourse means the funder carries the risk of the client’s insolvency, which is priced accordingly. Late payment is not the same as non-payment: on a slow payer, the fee simply accrues for the extra days and comes out of the reserve.

What it is not

Payroll funding is not a merchant cash advance. An advance is a fixed sum repaid by a fixed daily or weekly ACH from your account regardless of when clients pay. Factoring is repaid by the client paying the invoice. Both have a place: factoring for the payroll gap, working capital for costs that are not tied to an invoice — recruiters, a new office, a workers’ comp deposit. Many agencies run both, and the comparison with a line of credit covers the third option.

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Related: Invoice factoring · Can a new agency get factoring? · Factoring vs. a line of credit · Agencies we fund.