Glossary · Funding
What is Working capital
Definition
The cash an agency must hold to pay contractors before clients pay invoices. It is the real startup cost of a contract staffing business.
Applies to: US and UK · Reviewed by James Doyle
In practice
Contractors are paid weekly. Clients pay on 30 to 60 day terms. That gap — often a 52-day cash cycle in practice — has to be funded by someone, and it grows every time you place another contractor.
Setup costs for a staffing agency are modest, commonly around $9,000 for entity, insurance, contracts and software. Ten contractors on a 52-day cycle can require six figures of working capital. Growth, not failure, is what runs contract agencies out of cash.
Worked example
10 contractors × $1,350 weekly burdened cost × 7.4 weeks ≈ $100,000 of cash tied up before the first invoice clears.
Related terms
Payroll funding
A facility that pays your contractors each week and is repaid when your client settles the invoice, removing the cash gap from the agency's balance sheet.
ReadInvoice factoring
Selling your unpaid invoices to a funder at a discount for immediate cash. The funder advances most of the invoice value, then pays the balance on settlement.
ReadCash conversion cycle
The total time between paying a contractor and collecting the matching client payment. In contract staffing it is commonly around 52 days.
ReadDSO
Days sales outstanding: the average number of days between invoicing a client and being paid. Every extra day is cash you have to fund.
Read
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