Federal and state laws are clear: you need to pay your employee. In fact, they tell you the minimum wage and frequency of payments. The latter depends on the state law, but it can be weekly, biweekly, monthly, etc. Not only that, you need to pay overtime. So what will you do if you want to keep up with payroll? Explore payroll factoring.
What Is Payroll Factoring?
Payroll factoring is no different from regular factoring. The only variation is the intention: you use the money to pay your employees’ salary.
In factoring, you work with a company offering such service. You give your invoices or accounts receivables. Usually, these receivables are about 90 days old. In turn, the company gives you at least 70 percent of the total amount of the invoices. You will receive 30 percent once the customers pay. (The actual percentage can differ among factoring companies.) But the company reduces the amount with the factoring fee and other charges.
What Are the Benefits of Payroll Factoring?
Factoring helps you tremendously when you want to keep up with payroll:
1. It is quick. Let’s pretend that huge sale you are hoping for remain unpaid come payroll time. What will you do? When you apply for factoring, you may receive your money within a day or two. This is because the requirements are straightforward. All they need is your invoice.
2. They can help check credit worthiness. Before the company approves your application, it conducts a credit check. This means they determine whether your customers are likely to pay or not. Even if you don’t get approved, you will have a better idea of your customers’ ability to pay.
3. You do not need a credit history. Are you worried you don’t have a good credit score? Are you someone who doesn’t have a long and reliable credit history? Apply for factoring. Companies usually don’t need that as your invoices will already suffice.
4. You do not get tied to debt. What’s worse than not having enough money to pay up the payroll? It’s to get debt to pay employee salary. With factoring, you don’t create debt. There’s no monthly payment to make, and you won’t have to worry about paying a lot of money on interest. Companies earn by reducing the last money they give you with the fee and other charges – that’s it!
5. It is less hassle. Some companies provide you with a non-recourse setup. In this process, the company pays you the value of the invoices even if customers don’t. This comes with a higher fee and other charges. But there’s a good chance the amount is smaller than your actual potential losses. Furthermore, you don’t do the collecting but the company.
Factoring, indeed, helps you keep up with payroll easily and quickly. You don’t even have to change your payroll process. You are still the one who issues checks! But factoring saves you the trouble of delayed payroll and getting into trouble with the law and employees.
Are you a small business owner looking to keep up with payroll. If you are in a tight situation at the moment, invoice factoring companies might be able to help you. Learn more about it at FactoringCompany.net.