The money · Lesson 6 of 18 · 6 min
You pay contractors on Friday. Your client pays in 45 days. Work out what that gap costs you before you find out the hard way — no signup, no email.
Cash you need to float payroll
$50,400
You pay 5 contractors $7,840 every week. Your client pays 45 days after invoice. That gap is money out of your pocket, every week, before a single invoice clears.
Gross spread
$15.00
per hour, before burden
Burden
$4.20
12% of pay rate
What you actually keep
$10.80
21.6% margin
What the same business needs as it grows
| Contractors | net 30 | net 45 | net 60 |
|---|---|---|---|
| 1 | $6,720 | $10,080 | $13,440 |
| 5 | $33,600 | $50,400 | $67,200 |
| 10 | $67,200 | $100,800 | $134,400 |
| 20 | $134,400 | $201,600 | $268,800 |
| 50 | $336,000 | $504,000 | $672,000 |
Growth makes this worse, not better. Every contractor you add is more payroll you carry before you are paid.
Weekly gross profit
$2,160
Monthly gross profit
$9,360
Before your own overheads
Figures are what your inputs imply, not a market benchmark. Burden and rates vary by state, job code and vertical — use your own. This models contract and temp placement; permanent placement has no float, which is the whole difference between the two businesses.
They fail at funding. Winning the client is the part everyone plans for. Carrying the payroll until that client pays is the part almost nobody models, and it is the one that runs the bank account dry.
The mechanics are simple and unforgiving. Your contractor works this week and is paid this week. You invoice, and then you wait — thirty, forty-five, sometimes sixty days. Every week in between, you pay again. At steady state you are permanently carrying however many days of payroll your client's terms dictate.
Check yourself
Your client moves from net-30 to net-60 terms. Everything else stays the same. What happens to the cash you need?
You win a big new client and staff five more contractors. Why might your bank balance get worse before it gets better?
It is also the clearest argument for starting on permanent placement, or mixing the two. Perm income is lumpy and one-off, but it carries no float at all — which is exactly the trade-off the first lesson was about.
Key takeaways
Enough to cover the payroll you carry between paying your contractors and being paid by your clients, continuously — not once. The figure is roughly your weekly payroll cost divided by seven, multiplied by the number of days your client terms run, and it scales with every contractor you add. Because it depends entirely on your own rates, hours, headcount and terms, the calculator on this page is more useful than any average.
The money permanently tied up in the gap between paying workers and being paid for their work. Contractors are typically paid weekly; clients typically pay on thirty to sixty day terms. At steady state you are always financing that many days of payroll out of your own funds. It is not a startup cost that goes away — it is a standing balance that grows with the size of your desk.
Factoring exists precisely because of this problem: a factor advances most of the invoice value immediately and takes a fee. Whether it is worth it comes down to whether the fee is smaller than the growth you cannot fund without it, and whether your margin can absorb it. Run your own numbers through the calculator first — knowing exactly how much float you are financing is what turns that into a decision rather than a guess.
Four levers, in rough order of how much they move: negotiate shorter payment terms, invoice the moment timesheets are approved rather than at month end, chase late payers immediately, and be deliberate about how fast you grow the contract book. Slow invoicing is the one most within your control and the one most often ignored — every day of delay is another day of your own money in the gap.
Finished this lesson?
Next: Setting up: entity, insurance and contracts
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