Payroll Challenges

You know the economy is booming when businesses are stepping over themselves to hire new people. The challenge for smaller, growing businesses is when their hiring outpaces their payroll – meaning they need more hires than they have the resources to pay them on time.

Without access to a reliable source of funding, businesses must forego taking on new business, which can make it difficult to survive in a competitive environment.

Think of it this way: Your business gets a new customer or an unexpectedly big order and you need to hire additional staff to handle the additional workload. You hire three people today who expect to be paid in two weeks, yet the customer expects to pay you on 30-day terms. Where does the money come from to cover the payroll while you wait for payment from the customer? If you can’t find it you either lose your new employees or a customer – neither of which a growing business can afford to do.

Staffing Companies are Particularly Challenged

Staffing companies, which are responsible for fueling the economy to the tune of 17 million workers, face this dilemma week-in and week-out as they try to grow their businesses. In addition to meeting the payroll needs of the business, staffing companies must be able to cover employment taxes and the cost of compliance with regulations. When they get a new client, they must be able to cover these costs for up to two months before they receive the revenue from the new client. If the cash is not in reserve, the company must be able to access a source of funding and traditional bank financing is usually not an option for less established companies with fluctuating cash flows.

Meeting the Challenge with Payroll Funding

That’s why growing staffing companies often turn to payroll funding (also known as staffing factoring) to smooth out their cash flow. It’s not a loan, so there’s no credit qualification and there’s no need to carry debt. As another form of invoice factoring, it’s more like an advance on the revenues expected from the invoices issued to their customers. Instead of struggling through weeks of waiting for payment, staff companies can access the cash immediately to cover their operating costs with room to staff up if another client comes on board.

The challenge facing most staffing companies is the business can be unpredictable, making it difficult to manage current cash flow while planning for future growth. Because payroll funding using invoices, its quick and easy to set up (approval and funding within two days), and it doesn’t require a business to have an established financial or credit track record (it relies on the financial strength of the invoiced customers), staffing companies can access it at their time of need to address any number of challenges:

  • To quickly ramp up for a new client
  • To meet demand during hiring spikes
  • To ramp up for seasonal or temporary employee hiring
  • To deal with unexpected over-staffing
  • To cover the costs of miscalculating payroll taxes

Why Use Payroll Funding

There are several reasons why payroll funding is often the best financing option for staffing companies:

Just-in-time funding:

No long application and approval process. Set up an account and receive approval and funding within one to two days.

No credit or financial requirements:

Payroll funding companies rely on the financial strength of invoiced customers for funding approval.

No debt to carry:

Payroll funding is based on a sale transaction – exchanging unpaid invoices for a cash advance.

Offer competitive terms:

The payroll funding company takes over the responsibility of collecting payment on the same terms offered to the customer.

Focus resources on growing the business:

Because the payroll funding company takes on the workload the staffing company can focus more of its resources on growing the business.

While payroll funding is not an inexpensive form of financing, staffing companies can control their costs by using it only as much as it’s needed, paying between 1% and 5% of the invoice amount as a fee.

Almost without exception, growing businesses need to access capital at some point if they want to get to the next level. For small- and medium-sized staffing companies, the need for capital can arise periodically when their expenses temporarily outpace their cash flow. That’s normal for a growing business.

To learn more about partnering with a payroll funding company to grow your business, go here where you can also search for payroll funding companies in your state.