Local Payroll Pros Help Explain Payroll Financing
No business ever wants to miss a pay period. Nothing can eliminate the goodwill you have built with your employees and decrease company morale more than not paying your people on time, but sometimes the normal course of business can leave a company short on cash.
If you find yourself in danger of missing payroll, there are solutions available which will allow you to issue checks and keep your employees happy. One of these solutions is payroll financing, and depending on your business and your cash flow situation, it could be the ideal option for your needs.
There are many misconceptions and confusion surrounding payroll financing, so in the sections below our team of local experts will weigh in with some insight into what payroll financing is and if it’s right for your business.
Payroll Financing vs. Payroll Factoring
The first step in discussing payroll financing is to outline what it is, and what it isn’t. Payroll financing is often confused with payroll factoring, and while either option might work for your business, it’s important to understand the difference. Payroll financing, as the name would imply, is simply a short term loan which is issued for the purpose of paying a company’s employees. This loan can be obtained easily, and typically a company only has to provide simple information for approval. Payroll factoring involves the sale of a company’s open invoices to a payroll factoring business at a discount. The factoring company will then attempt to collect on these invoices at full price.
When Payroll Financing Makes Sense
While payroll financing and payroll factoring both represent ways to receive an influx of cash to be able to make a pay period, there are instances where one or the other might make more sense for your company’s needs. Payroll financing is almost always preferable if your company can qualify for it, and if your company will be able to pay back the loan within the payment period. Financing is preferable to factoring because in factoring, your company loses a certain percentage of money due when it sells invoices at a discount. Often, the interest due on the payroll loan is much less, and if you feel confident you will be able to pay the loan back, this is probably the better choice.
As an example, if your company has been working on a very large project and you have exhausted many resources along the way, it might be difficult to make payroll. However, your payday on this large project might be coming due soon. Since this is the case, a payroll loan can make sure you bridge the gap between when the invoice for this project is sent out and when the payment from the client comes through.
How To Choose a Payroll Financing Solution
If you feel payroll financing could be a good option for your business, our team of local pros can help you get started. If you have questions about payroll financing or any part of the payroll process, please feel free to contact us today.
