Payroll Float / Working Capital

Why this comes up

Payroll runs on a fixed schedule regardless of when clients pay. This engine answers the question every staffing agency eventually has to answer precisely: how much cash does the business need to hold, continuously, purely because of that timing gap, not because anything is going wrong.

How we calculated this

This runs a full week-by-week cash timeline, not the common shortcut of weekly payroll times DSO in weeks. The two agree in a steady state, but the shortcut understates the real requirement the moment volume ramps, since it doesn't find the actual trough, the deepest point before receipts catch up.

For each week: Cumulative Cash += Receipts (billings collected after the delay) - Payroll Outflow
Required Starting Cash = the largest negative cumulative cash point across the simulated window

Worked example, steady state: $30,000/week payroll, $36,000/week billings, a 6-week collection delay.

Weeks 0-5: no receipts have arrived yet, cash falls $30,000/week
Cumulative at week 5: -$180,000 (the trough)
Week 6 onward: receipts start arriving and cumulative cash recovers
Required Starting Cash = $180,000

In this steady-state example, the simulated trough exactly matches the crude shortcut (weekly payroll x delay weeks = $180,000), because volume never changes. The simulation earns its keep on a ramping book, where the crude shortcut understates the real trough; see New Contract Cash Requirement for that case.

What this means

• This is the cash your steady-state book requires continuously, not a one-time buffer; it exists in every billing cycle regardless of how well the agency is run.
• A financing advance (factoring or a credit line drawn against receivables) reduces the effective trough, since it accelerates part of the receipt earlier than the full collection delay.
• If your actual DSO is longer than what you've entered here, this figure understates your real requirement; keep the collection delay current with your actual measured DSO.

Common mistakes

• Using the crude weekly-payroll-times-delay shortcut for a ramping or growing book, where it systematically understates the real cash trough.
• Sizing a credit line or cash reserve to an old DSO figure instead of the current, measured one.
• Treating this as a one-time number rather than re-running it whenever payroll, billings, or collection terms change materially.

Frequently asked questions

Why simulate week by week instead of just multiplying?

Multiplying works only when volume is perfectly steady. The moment payroll or billings change week to week, the actual trough can land somewhere the simple multiplication misses entirely, which is exactly the case a growing or ramping agency is usually in.

What does the financing advance percentage do?

It models receiving part of each week's billings immediately (through factoring or a financed line) rather than waiting the full collection delay, which reduces the real cash trough. Leave it at 0% if you don't have such a facility.

How is this different from Staffing DSO?

Staffing DSO measures how long collection actually takes, in days. This engine converts that timing into an actual dollar cash requirement you need to hold or finance.

Limitations

Assumes payroll and billings are known for each simulated week; for a book with real seasonality or a specific new contract ramping, model that scenario directly with Seasonal / Surge Cash Requirement or New Contract Cash Requirement instead of this steady-state view.

Next decision

• Model a specific ramping contract's cash requirement instead of steady state
• Check how many payroll cycles your current reserve would cover

Learn more

Why Staffing Agencies Need So Much Working Capital — working capital in staffing is structural, not a buffer for bad months.