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Guide to US Payroll Funding for Staffing Firms

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Understand invoice factoring, employer of record funding, and asset-based lending to choose the right capital structure for your staffing firm's growth stage.

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What Is Payroll Funding for Staffing Firms?

Payroll funding is working capital that covers the gap between when staffing firms must pay their workers and when clients pay their invoices. In the US, temporary employees typically receive wages weekly or biweekly as required by state law, but industry practitioners widely report that most staffing clients pay in 30 to 60 days, and larger clients often pay in 90 to 120 days. This timing mismatch creates a structural cash flow gap that grows with every placement.

Here is some simple math: if you are spending $100,000 a week in payroll and clients pay in six weeks, you will need at least $600,000 in funding to cover payroll, not including internal team salaries and other costs. At any reasonable level of growth, you will need substantial working capital.

The scale of this funding need reflects the size of the industry. According to the American Staffing Association, US staffing industry sales totaled about $113.5 billion in 2025, and staffing companies employed an average of about 2.2 million temporary and contract workers per week in 2024. Payroll funding is not optional for most growing staffing firms; it is a structural requirement.

In this guide, we will cover the top three ways staffing companies fund payroll in the US: invoice factoring, employer of record funding, and asset-based lending. There are other methods, such as equity capital or ordinary term loans, but these will not apply to most staffing firms. For a shorter overview of current providers, see our roundup of the top payroll funding options for staffing agencies.

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Invoice Factoring

What is invoice factoring? Invoice factoring is a financing arrangement where a factoring company advances cash against your unpaid client invoices in exchange for a fee.

Many recruitment firms that start out in the US will use invoice factoring. In the UK, invoice factoring might be called "invoice funding" or "invoice discounting." Factoring companies are usually standalone firms, not banks, although some banks will have a capital finance division that does factoring for larger firms. Some factoring firms will focus on the staffing market, but others are more generic and serve industries like trucking, consulting, construction, and government contracting. Staffing receivables are attractive to factors because the underlying credit risk is typically strong: across the factoring industry, write-offs averaged just 0.18% of volume in 2024 according to the SFNet year-end factoring survey. This low credit-loss environment makes staffing a favored asset class for factoring firms. For a deeper look at this method, read our guide to invoice factoring for staffing agencies.

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How Factoring Works

Factoring works similarly to regular lending. You have assets (your client invoices, or "accounts receivable"), and the factoring company will advance you money on those invoices for a small fee. Technically, the factoring company is "buying" the invoice from you, hence why most factors are not regulated as lenders. Practically, the process works like this:

1. You run payroll and invoice your client.
2. The client agrees to pay in 30 days ("net 30").
3. The factoring company agrees to buy the invoice for a fee.
4. The factor advances you part of the money for the invoice (usually 80-90%, which is called the "advance rate").
5. The remainder of the money is held back until the client pays.
6. Once the client pays, the factor releases the held-back amount less their fee.

Factoring companies control their risk by making sure your clients know the factor owns your invoices by sending them a notice of assignment at the beginning of your engagement with a new client. They also mandate that the clients pay funds directly to the factoring company's bank. Clients in the US are used to this arrangement, so it will not seem strange to them.

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Factoring Pricing

Factoring fees can be structured in several ways:

• Fixed percentage of the invoice (2-3% is common)
• Daily percentage fee ("daily rate") on the outstanding advanced funds, approximating 2-3% of the invoice value if clients pay in 30 days
• Collateral monitoring or lockbox fee, usually a flat monthly charge
• Origination fee when the invoice is first sold (usually 0.5% to 1% of invoices)

Each rung of the factoring market will have different pricing and different facility sizes. At the low end of the market, you could be paying prime rate + 15%, and at the upper end, close to prime + 5%, not counting other fees. As of August 2026, the US Prime Rate stands at 6.75% according to the Federal Reserve, so factoring rates currently range from roughly 11.75% to 21.75% before additional fees. The "Prime Rate" is the rate in the US that lenders charge their most creditworthy corporate borrowers and is generally a few percentage points higher than the central bank interest rate, the fed funds rate.

The key thing to note is that the more complicated the fee structure is, the harder it will be for you to compare their rates with others. They may have a low daily rate but a high origination fee. Or, they may have a very low advance rate but a low fee rate on the invoice. A low advance rate effectively increases the factor's return, because they have less capital at risk. Conversely, some factors may have a "100%" advance rate (more common in the UK), but there are often very high fees to go along with this teaser rate, along with extremely strict client credit limits and other non-obvious costs.

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Factoring Company Practices

Factoring firms will generally work with very small and new firms, and the reason they can do this is that they are underwriting the credit risk of your clients, not your firm. This has some pretty big implications. Generally, they will run credit on every client and set a credit limit for each client. These will be strict, and they will not buy invoices after the credit limit is hit. Sometimes they will raise these amounts if you are able to get trade credit insurance with higher limits than their credit limit, but generally, their limits will be on par with the insurance agencies. Since factoring runs on the underlying invoices, factoring firms will need a copy of every invoice you generate, and you will need to upload them weekly to a portal the factoring firm will have.

Factoring facilities for smaller firms can reach several million dollars in total funding, though the exact ceiling scales with your eligible receivables and varies across firms. Remember this is the total balance advanced, but each client will have defined, sometimes very low limits ($5,000 or lower). To put this in perspective, a few million dollars in receivables might correspond to roughly four times that in annual sales, depending on how quickly your clients pay.

There are some important considerations when using a factoring company that are not obvious to first-time users. Factoring companies will remove invoices from your eligible invoice base if they become older than 60-90 days past due (this is sometimes called "Aging Out"). For example, if you have $100,000 in invoices and can borrow $90,000 (90% of the $100,000), if a $10,000 invoice goes over 60 days past due, your eligible invoices would go down to $90,000, and your funding availability would go down to $81,000 (90% of $90,000). You will need to keep track of your invoice aging to manage this risk.

Related to aging out is cross-aging. Under a factoring or asset-based lending agreement, if a share of a client's invoices (commonly around 20% to 25%) goes significantly past due, all of that client's invoices can become ineligible, even the current ones. This means your borrowing availability can evaporate extremely quickly. Invoice factors will also generally enforce maximum client concentrations around 20%. That means that they will not fund a client who becomes more than around 20% of your total accounts receivable balance.

The worst part about these funding terms and conditions: they may not (and likely will not) be in your contract. Typically, factoring companies will have "sole discretion" terms built into their contracts, which means they can retroactively add cross-aging and other criteria, or worse, they can outright refuse to continue funding you if they feel the risk is too high.

Potentially the riskiest part of invoice factoring is that you will be required to sign a personal guaranty if you are a significant owner of your staffing firm (over 25% ownership). This means that if, for some reason, your clients refuse to pay and the factoring company does not receive their funds back, they will ultimately come after your personal assets.

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Employer of Record Funding

What is EOR funding? Employer of record funding is a payroll funding arrangement where the EOR covers your contractor payroll from its own account before your clients pay, eliminating the need for a separate factoring relationship.

An Employer of Record is a company that becomes the legal employer of your staffing workers, handling payroll, onboarding, and other compliance matters. Most EORs only handle payroll and employment, and you are responsible for covering the payroll costs as they come due. Some EORs focusing on the staffing industry, such as Ascen, will front the payroll costs for you before your client pays.

Practically, this arrangement works the same as invoice factoring. You will be able to meet payroll plus costs each week, and clients will send money directly to the EOR. Structurally, it is different, however, since the EOR is not advancing funds to your bank and is instead covering payroll from its own account.

Like a factoring company, the EOR will have a credit limit for each client, and your end client will know about the relationship. Generally, funding EORs do not have cross-aging or concentration limits in the way factoring companies do.

Using an EOR for funding has some advantages since it will ensure payroll rules are being followed, and you will not need to handle invoice posting and cash flow management the same way you would with an invoice factoring company. Since the EOR is not technically a lender, they will not have a lien on your assets and will not require a personal guaranty. If you are worried about losing your house or other assets due to business failure, you should use an EOR instead of a factoring company.

The Ascen model takes this further by embedding payroll funding directly into the same white-label pay-and-bill system that also handles onboarding, payroll, benefits, workers' compensation insurance, and client billing. Instead of managing a separate factor or lender plus your own collections, you get one provider for the entire back-office workflow. Financing costs are comparable to factoring companies, but without personal guarantees, a lien on your assets, or the operational overhead of posting invoices to a separate funding portal.

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Asset-Based Lending

What is asset-based lending? Asset-based lending (ABL) is a bank or specialty lender facility that advances funds against your accounts receivable with more flexible terms than factoring but stricter underwriting requirements.

At around $4-5M in accounts receivable and sometimes lower, you will graduate to Asset-Based Lending. Here, you will start to see banks more in the mix of providers, but there will still be standalone firms. The standalone firms will typically allow lower balances, especially if they are focused on the staffing industry. Access Capital is an example of one of those firms.

Generally, Asset-Based Lending is better in every way versus factoring (pricing, structure, notification, logistics), but ABLs will have much stricter underwriting standards. They will often require "reviewed" financial statements, which are similar to audited financials but without the transfer of liability to the accounting firm. Preparing reviewed statements typically costs several thousand dollars, and a full audit costs more. ABLs will also look into the background and operations of the business in greater detail than a factoring company during their due diligence investigation.

Asset-based lending is similar to invoice factoring in that the lender will advance usually up to 90% of the invoice value. However, ABLs will have more freedom to work with non-standard situations compared to factoring firms. They may be willing to fund more than 90% of invoices in certain situations, or they may fund permanent recruitment fee ("direct hire") invoices. The reason they can do this is that they are taking a more holistic view of your company and assets. The downside is that you will likely have financial covenants, such as profitability ratios and other lending ratios, that would never exist in a factoring relationship. Aging limits, credit concentration limits, and cross-aging limits will still apply in an ABL facility.

Another benefit of an ABL facility is that typically client funds will be directed to your own bank. The ABL firm will have what is called a "Deposit Account Control Agreement" or "DACA" on your bank account, so you will not be able to access these funds, but this is better than having your clients send money to another entity's bank account. Unlike factoring companies, the ABL will not contact your clients to notify them about the lending relationship. They may occasionally verify collateral values through an accounting firm, but this is meant to be non-invasive in a way that is opposite to the practices of typical "full notification factoring."

ABLs will not need a copy of every invoice but rely on reporting when advances are requested. The tradeoff is that you will need more financial expertise and will likely need an internal or external controller to maintain your books. You will also be required to do monthly financial reporting.

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ABL Pricing

ABL fees are substantially cheaper than factoring. Typically, ABLs will price below prime plus 4%, meaning below roughly 10.75% at current rates. ABLs may also price based on SOFR (the Secured Overnight Financing Rate), which replaced LIBOR after June 30, 2023 per Federal Reserve guidance. There may be a collateral monitoring fee, but these will be low (0.25% to 0.5% of invoice values). ABL facilities can become very large. $25 million in funding is a common upper limit for standalone ABL firms, but money center banks can go much larger. Note, though, that a $25M borrowing base will put you over $100M in sales, which places a firm among roughly the 225 largest US staffing firms, according to Staffing Industry Analysts, whose annual ranking requires at least $100 million in US staffing revenue.

One thing to note about borrowing limits is that ABL firms will start out with a funding limit that fits your medium-term growth, but they will raise the limit as you grow. This just requires a small amendment to your contract, so do not let it hold up negotiations at the onset due to what looks like a low limit. Factoring firms will also raise your total limit, but they will have fundamental size limitations that ABLs will not.

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Where To Start

Financing is a never-ending process for companies, so where you start is not where you will end up if you are growing. Asset-based lenders will be your best bet once you approach $5M in receivables. At the onset, however, choosing between a factoring company and an employer of record comes down to several considerations.

If you are a new firm without much compliance and financial team in the US, an employer of record funder will likely be the smartest option due to the efficiencies you receive by using one firm for back office, employment, and funding, with financing costs that are comparable to factoring companies. This is also the fastest way to scale your back office without adding internal headcount.

Factoring companies may be a good choice if you are confident in your ability to manage risk and you have other structural reasons for wanting to be the underlying employer.

Deal structure, your company's internal capabilities, and fundamental risks are the key considerations on your funding journey in the US staffing market. Either way, the goal is to get your mind off money and back on your candidates and clients.

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Frequently Asked Questions

Is payroll funding a loan?
Invoice factoring and EOR funding are technically not loans. In factoring, the factor purchases your invoices rather than lending against them. In EOR funding, the employer of record covers payroll from its own account. Asset-based lending is a loan secured by your receivables.

How long does payroll funding approval take?
Factoring companies and EOR funders can often approve new staffing firms quickly because they underwrite your clients' credit risk rather than your firm's financials. ABL facilities require more extensive due diligence including reviewed financial statements, which can take several weeks.

Will my clients know I'm using payroll funding?
With invoice factoring, yes. Factors send a notice of assignment to your clients and require payment to the factor's bank account. With EOR funding, clients know you use an EOR but the relationship is positioned as back-office support. With ABL, clients typically do not know because funds flow to your own bank under a DACA arrangement.

How does payroll funding compare to a traditional bank loan?
Traditional bank loans require strong financials and personal guarantees, and funds are not tied to specific invoices. Factoring and EOR funding are available to newer firms because they are based on client creditworthiness rather than your balance sheet. ABL facilities are a middle ground with bank-like pricing but a receivables-based structure.

Do I have to sign a personal guarantee?
Invoice factoring typically requires personal guarantees from owners holding more than 25% of the company. EOR funding through providers like Ascen does not require personal guarantees. ABL requirements vary by lender.

How much funding can a staffing firm get?
Factoring facilities for smaller firms can reach several million dollars, with the exact ceiling scaling with your eligible receivables. ABL facilities can reach $25 million or more from standalone lenders, and money center banks can go much larger. EOR funding limits are set per client based on credit analysis.

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Ready to fund payroll without personal guarantees or liens on your assets? Book a demo with Ascen to see how our integrated EOR and payroll funding platform can streamline your back office and scale with your staffing firm.

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