What is Payroll Financing

Funding payroll is never easy when you have to live paycheck to paycheck. In some cases, you can be a completely stable company with a long list of clients but if your clients don’t pay you back on time it can be hard to make payroll. Not to worry, there are options for payroll financing out there that will let you say goodbye to slow paying customers.

Slow paying clients don’t make things easy on anyone. What is worse is a slow paying employer. Imagine being an employee and needing to earn your paycheck in order for your family to eat. And now imagine as a manager you have to tell them sorry I can’t pay you. That is not a conversation any small business owner wants to have to have and is a quick way to lose a good employee.

There are several options for payroll financing depending on what your business is truly looking for.

Factoring

Factoring is an option that business owners can use when funding payroll. It allows them to utilize their unpaid invoices as collateral. Essentially the business owner can sell their unpaid invoices to a payroll funding company in exchange for a cash advance. This allows you to stay ahead of payroll at all times.

There is a catch, the cash advance will typically be anywhere from 20 to 25% less than the value of the invoice. Depending on the amount of the invoice and the credibility of the client, some payroll funding companies will pay up to 95% of the face value of the invoice. This will depend on a variety of factors. Because payroll funding companies are taking a risk that the invoice will get paid back, this is their insurance method.

Payday Loans

A payday loan allows a borrower to write a check in the amount of the payroll plus the lender’s fee. The borrower will then give the check to the lender, who will give them the amount of the check minus the fee, in cash (typically). The lender agrees to not cash the check until a pre-determined time.

The fees on this type of payroll financing can vary based on the lender. Some lenders will charge a specific percentage of the payroll. Others will charge a flat fee in addition to a percentage for every dollar advanced.

If you are considering a payday loan, make sure you read the fine print before signing the contract.

Merchant Cash Advance

A third option for payroll financing is a merchant cash advance. This type of funding allows businesses that qualify to be advance money in exchange for a fixed percentage of their credit card transactions. This percentage is taken daily until the advance has been paid back in full. Just like the previous two options, this type of payroll financing does have fees associated with it.

A merchant cash advance can get you funding in just three days. The process is simple. Apply with a simple form. Our team will then review your application and you will hear from us in just 24 hours. We will let you know what you are approved for which can be anywhere from $5,000 to $500,000 based on a few criteria. Just three short days later, you will have the cash directly deposited into your account. How does that sound?

A merchant cash advance account is a great option for payroll financing. But we also know it is not right for everyone. It is also important for you to understand the differences between the different funding sources. If you have clients that aren’t paying you back as quickly as you would like and you need payroll financing, contact us! We can help you determine what option is right for you.