What is Payroll Funding?
Payroll funding, also known as payroll financing, is a tool that allows your company to finance invoices in order to get access to immediate cash to make payroll. Payroll funding works by providing working capital to pay employees or temporary staff while waiting for your customers to pay allowing you to meet payroll requirements.
What are the Benefits of Payroll Funding?
Unlike other financing options like a traditional loan, payroll funding is fast and efficient. After approval, you can start receiving funding requests in as little as a day. With payroll funding, you are able to offer clients more flexible payment terms allowing you to be more competitive. Unlike a business loan, payroll funding does not show up on your balance sheet as a debt.
Payroll funding is useful for businesses that receive customer payments at longer intervals than when they pay their employees. For example, if your organization offers payment terms of 30 or 60 days, your clients will only be providing you with cash at the end of each month or the end of every second month. When it comes time to process payroll, you may not have the cash necessary to pay your employees. Payroll funding eliminates this issue.
What is the Difference Between Payroll Advance and Payroll Funding?
A payroll advance refers to a personal loan product that allows an individual to receive an advance from a future paycheck, usually in exchange for a flat fee. These loans have a repayment requirement, usually in two to four weeks, and carry a relatively high interest rate. If someone defaults on a payroll advance, there are steps that are taken by the lender to recover those funds including collections activities and negative reporting to credit bureaus.
Payroll funding, on the other hand, refers to a process whereby a business obtains the cash necessary to cover its payroll obligations. Most companies have a reserve in their bank accounts to cover their payroll obligations. However, if a business lacks the necessary funds to cover their payroll, they can sell invoices to a factoring company to receive payroll funding. Payroll funding through an accounts receivable financing company, like Universal Funding, is not a loan and there are no repayment obligations. Since there is no repayment obligation, there is no risk of default or negative credit reporting. It is a simple sales transaction that helps companies meet their payroll obligations and keeps their businesses running smoothly.
What is a Payroll Loan?
A payroll loan is a short-term business loans or advance that allow a company to borrow funds to ensure employees are paid on time. When a businesses is short on cash flow and finds it might not make payroll, they may look to a payroll loan. Payroll loans offer quick cash, but also must be repaid quickly and have fixed, higher interest rates. Payroll loans are relatively easy to qualify for and the approval time is fairly quick. It’s important to note that payroll loans typically have high interest rates as well as origination fees. And, if you repay your loan early, there may be prepayment penalties.
Benefits of Invoice Factoring for Payroll Expenses
For many businesses, payroll is one of the largest expenses and requires that you have a significant amount of available cash for your employees to draw upon. Using your existing accounts receivable through invoice factoring offers several benefits:
- Generate immediate cash when you need it
- Avoid the hassle, time, and paperwork of traditional loans
- Avoid worries about whether and when your customers will pay, particularly if you have a payment cycle of 30 days or more
- Concentrate on growing your business instead of collecting receivables
- Let the factoring company worry about the cost, time, and effort to collect on outstanding accounts
- Get unlimited access to cash, based on your existing receivables, without going into more debt
How Does Payroll Funding Work?
The process of payroll funding is fairly straightforward and quick. Once approved for payroll funding, a business can start receiving funding as quickly as two days or less. Here’s a quick overview of the process:
- The company provides its services and then invoices its customers.
- The company sells its invoices, also known as accounts receivable, to a payroll funding company to receive working capital to meet its payroll needs.
- The payroll finance company advances from 80-95% of the invoices.
- Once the customers pays their invoices to the payroll funding company, the company will receive the remainder of their balance, less a small fee.
Payroll Finance for Cash Flow Shortages
Are you facing financial issues in your business that is preventing you from paying your employees? Whether you have 5 or 500 employees, they deserve to be paid on-time every time. We typically see payroll shortages in the staffing and temporary personnel industry. However, many companies who experience seasonal dips in income also may face payroll hardships.
The Universal Funding team is experienced in working with companies work through cash flow shortages to make payroll obligations. We offer advances to companies that have proven to be profitable, but may be facing a temporary shortage. Unlike traditional loans or working with other factoring companies with high rates, Universal Funding is privately funded and is able to offer low rates.
Invoice factoring can provide payroll funding to cash strapped businesses by allowing the business to sell accounts receivable in exchange for a lump sum of cash. The process is fast and simple. In some cases, businesses can receive the money in as little as 48 hours, allowing them to meet their payroll funding obligations and pay their employees for all their hard work.
Fast and Easy Payroll Funding
Universal Funding helps businesses maintain a steady cash flow by purchasing their unpaid invoices or accounts receivable. We advance you a significant portion of your unpaid invoices so that you can invest in your employees and provide them with a sense of security that their paycheck is never on the line.
Universal Funding’s team of professionals have helped companies of all sizes in a wide range of industries secure payroll funding through invoice factoring services.
Don’t Let Late Paying Customers Jeopardize Payroll
If your clients are becoming late on payments and you are unsure what to do, give us a call and we will answer your payroll funding questions. Payroll funding is the same as payroll financing and is a service that can be very important to small businesses that need a funding option to make payroll while increasing their financial stability. We can help you transform your assets into cash that can be used to help your business excel and become more successful. You can be more profitable, efficient, and more productive as a business. More importantly, you won’t have the weekly or monthly stress of making sure your customers have paid to meet your payroll needs.
Related: How to Chase Late Paying Customers
Grow Your Business Today
Many business owners will not take risks to grow their business because the want to keep money in reserves to make payroll. Payroll funding allows you to use your assets to expand your operations and staff.
Universal Funding’s payroll finance services are fast and use your accounts receivable as an asset. Approval can occur in a matter of days, and financing can begin within a couple of hours after receiving your first invoice. Instead of struggling with payroll this month, give us a call today at 800.405.6035 or complete a rate form and a factoring specialist will get in touch with you right away.