Temp staffing factoring, in which staffing firms sell their invoices for a fee to a third party and gain cash upfront to pay their employees and other related parties, is a popular temp agency funding option. However, it is sometimes difficult to determine who owns the accounts receivable.
“In a traditional banking situation, you’re using your receivables as collateral but retain control of them,” says Bruce Friedman, director of assurance services at SS&G, a national accounting and business consulting firm. He explains that in some factoring situations, the factor, not the firm, controls the temp agency accounts receivable.
Friedman cautions tax implications differ depending on who owns the accounts receivable. Most staffing companies report their income on a cash basis. If the factor owns the accounts receivable, the factor’s payment should be treated as income for the firm at that time. If the staffing firm owns the accounts receivable, the factor is treated like a line of credit and payment is not considered taxable income. A staffing firm should always consult a tax advisor to make sure it is reporting this information correctly, Friedman advises.