Advantages and Disadvantages of Payroll Funding
With cash flow changes due to seasonal influxes, rapid growth or other reasons, meeting payroll can sometimes be stressful for business owners. If you’re experiencing the struggle to pay employees because of slow paying clients, payroll funding is a financing option for your business.
Everything about payroll funding with a factoring company is straight forward, but looking at your options as a business owner is always important.
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Pros of Payroll Funding
Financing your payroll with invoice factoring definitely has it’s benefits, but what actually are some of the advantages?
Funding payroll with a factoring company gives you flexibility.
There are no minimums or long-term contracts, so you have the freedom to basically handle your money however you wish.
You have unlimited funding potential.
As long as you’re invoicing customers, the amount of money you can receive isn’t capped to a certain amount.
Factoring your invoices to get your employees paid gives you consistency.
This is beneficial for many types of companies, especially staffing agencies.
As the owner of a staffing company, you’re always going to be responsible for meeting payroll or you won’t be in business for very long, and funding your payroll with a factor gives you the consistency you need.
An added benefit for staffing agencies is back office support.
Many factoring companies that work with staffing agencies for payroll funding also offer back office support. This allows staffing company owners to focus on running their business, rather than spending time processing payroll or running a credit analysis of a client.
Cons of Payroll Financing
Factoring for payroll involves an extra step.
Since you have to submit your invoices, you will be responsible for taking the time to properly submit them and any other documentation that backs it up. This can typically done via email though, which makes it fairly simple and straightforward.
You have to find the right factoring company to work with based on your needs.
It’s important to know if the factor has experience with the industry you work in, what their rates and terms are, for example.
The relationship you have with the factoring company is the most important part to make sure the payroll funding process is smooth and simple, just as it should be.