A payroll loan is a cash advance that is given to a borrower based on their employment status and income. A payroll loan is also known as a payday loan because the amount of the loan is typically scheduled for repayment upon getting paid by an employer.
Utilizing Payroll Financing
Payroll financing allows a company to finance invoices and assets to guarantee payroll is met.
Payroll funding works when a business will agree to sell their accounts receivable to the lender and this done so by the use of invoice factoring.
Possible harm to customer relationships. Since the responsibility of collecting is now on behalf of a payroll funding company, there is a chance of upsetting customer relationships.
What Is Payroll Financing?
No matter the industry or what kind of company, ensuring payroll is covered is one of the most important aspects of owning a business. Employees are the core of operations and ensuring they’re paid adequately for their time is critical to the growth and success of a company. What payroll funding does is allow a company to finance invoices and assets to guarantee payroll is met.
For smaller and growing businesses, making payroll can be difficult at times. While some stores are affected by seasonal sales, others may have invoices being tied up. With most commercial sales at a net 60-90 day fulfillment time, payroll lending is one of the most common options when waiting for payment.
How Does Payroll Financing Work?
Payroll funding works when a business will agree to sell their accounts receivable to the lender and this done so by the use of invoice factoring. Invoice factoring is the practice of when a business will sell off its invoices to a third party. The payroll funding company will typically buy the invoices in two installment payments.
The amount covered varies by industry but is typically between 80-95% of the value of an invoice and this is paid on the first installment. This is also called the advance. The second installment payment is sent once the invoice has been fulfilled, less a financing fee.
Is Payroll Financing Right For Your Business?
As with all financial products, it's important to know what is being agreed upon prior to accepting. The business should review all options and know the route to go after careful planning and analysis.
With commercial accounts taking one to two months to be paid out, it can be easy to see how a business could not have capital when needing it the most. This is where payroll funding comes in and can make that stagnation of a business waiting on payment to keep pushing forward with what they need to.