Payroll Funding You Can Count On With Invoice Factoring
Payroll can account for a large percentage of a company’s operating expenses for many small- to medium-sized businesses. Meeting weekly or biweekly payroll, however, is a crucial responsibility for any business owner. Employees deserve to get paid on time and business owners owe it to their employees to do just that.
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All the same, many businesses struggle to meet their payroll requirements for a number of reasons. Insufficient business cash flow, slow sales, and lack of cash reserves can make meeting payroll requirements difficult. As a small business owner, your payroll obligations remain the same even if sales are slow or an unexpected expense requires your immediate attention. In addition to covering the costs of employees’ weekly or biweekly checks, payroll costs might also include benefits, insurance, sales commission, bonuses and other types of compensation.
What Is Payroll Financing?
Fortunately small businesses or business with high net invoicing terms can take advantage of payroll funding options that improve their cash flow and help to meet their payroll obligations. That is, with payroll factoring, businesses can get an infusion of capital to both bolster their cash flow and satisfy payroll. Payroll factoring companies can be used on a regular, month to month basis and in as-needed urgent situations where the business is at risk of not meeting payroll demands.
By selling your current accounts receivables or invoices to payroll funding companies such as Business Factors, you can collect on money that is owed to you in 2-3 business days instead of 30-days, the usual client payment period. Though payroll funding might seem complicated to someone who’s not familiar with the process, it is actually quite simple.
First, as the small business owner, you sell your most current receivables to Business Factors, the payroll factoring company.
They will verify the validity of the invoice and run a credit check on your client — rather than your business — to ensure they have a good credit score. The payroll funding company will also make sure your client has a recent history of paying its bills on time.
Once everything checks out, the payroll financing company buys the invoices paying you for approximately 80 percent of the value right away. You will collect the remaining 20 percent once the client remits full payment of the invoice. (This is to protect the financial interests of the payroll factoring company.)
Collecting Advances on Your Invoices to Meet Payroll
With payroll funding, you can get paid right away without having to wait 30-days or more to collect client payment. In some instances payroll funding is referred to as “advance payroll funding” because it is like you are collecting an advance on money that is already owed to you.
Because businesses collect payment from their invoices every 30-days yet employees demand payment every two weeks, many businesses can struggle with having sufficient cash flow. Given the out of sync nature that exists between issuing employee payroll and collecting on invoices, monthly payroll financing makes sense for a lot of business.
Companies with large numbers of employees or those that have a large chunk of their expenses going toward payroll – particularly industries like staffing, recruitment or temporary employment agencies – can benefit tremendously from payroll factoring. A staffing agency that can’t pay its workers will certainly struggle to remain in business.
Payroll Factoring Can Be Used in Crisis Situations
Meeting payroll obligations is different than meeting other types of financial debts. While ideally you want to pay all your bills on time, sometimes one bill or another might slip through the cracks and get paid a few weeks late. Though you may harm your relationship with that vendor – and your own credit history – if you routinely pay your bills late, not meeting your payroll obligations is an error of an entirely different level. In the case of a rare need to factor invoices for payroll you can consider a company that provides spot factoring of single invoices.
In addition to having your employees up and quit, you could be subject of serious lawsuits and fined by government institutions. Failure to meet payroll is the single worst thing that can happen to a business outside of insolvency.
As such a business should do everything it can to pay their employees on time. Though payroll factoring is not only for business emergencies, it most certainly can be used for urgent situations if necessary. Though on-demand payroll financing can cost more, it is a far better alternative to not paying your employees.
Payroll Financing Puts Business Cycles in Sync
So if you are looking for a way to make sure you meet your payroll requirements each and every week, contact the experts at Business Factors. They provide payroll financing services so you can both improve business cash flow and add peace of mind knowing employees will get their paychecks.
Apply online or learn more about Payroll Factoring:
- Why Your Business Needs Payroll Factoring
- How to Sustain Payroll for Your Staffing Business During Growth
- 4 Common Payroll Mistakes to Avoid
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