Employees work tirelessly to meet the goals and objectives of their roles within the company in exchange for the salaries they receive per their employment contracts. It becomes pretty demoralizing when the business delays paying employee salaries as it negatively impacts the employees’ morale and effort. Business Factors & Finance deals with payroll factoring, a quick and reliable way for businesses to convert their outstanding invoices into cash, enabling them to pay employees’ salaries in time without delays. The invoices get sold to a factor, who acts as a third party, and the process increases the business cash flow through the elimination of working capital and reduces the need for back-office staff.
Why businesses should consider payroll factoring
Payroll factoring has numerous benefits to the business by providing them with the required liquid cash to conduct their various businesses. The various payroll factoring advantages are that it provides the business with a working capital within twenty-four to forty-eight hours, which prevents the business from taking a loan or opening a credit line. Additionally, the process eliminates the wait time associated with customer payment collection in exchange for a small service fee. The factoring companies take over the receivables account management for the factored invoices, making it unnecessary to have back-office staff. The positive cash flow enables the business to use the money for various purposes on top of paying their employees, such as growing the enterprise, purchasing new assets and even offering more competitive salaries to their employees.
The different kinds of payroll financing
There are two types of payroll factoring available for businesses to exploit to their advantage, and they come with several benefits. The first one is the no-service factoring, where the factor only purchases the invoice with the company retaining the responsibility of performing the subsequent tasks that include cash processing, filing it, and directing the money towards employee salaries, among others. The factoring option suits businesses that require payroll funding solutions but lack comprehensive business support. The second option is the full-service payroll factoring, which gives the factoring company additional responsibilities that include processing paychecks, filing tax returns, and other related tasks on the unpaid invoices. The business processes get outsourced to the factoring company, which provides full-service factoring saving the business money and time.
How the payroll factoring works
The payroll factoring follows a straightforward process that makes the whole procedure seamless and practical. The first step involves the business providing the factor with a copy of the invoice sent to the client, followed by the factoring company verifying the invoice and running a credit check on the account debtor. Once the client’s creditworthiness is confirmed, the factor advances a portion of the outstanding invoice amount to the business, with the remainder getting remitted once the invoice money is collected. The factoring company submits the remainder, deducting the discount rate and additional fees as agreed with the business. The process enables the business to collect various invoices and has the required liquidity to run its business functions.
