Choosing the Right Payroll Funding Provider

A key indicator of a growing economy is the increasing pace at which companies are hiring new staff and a by-product of a robust job market is the growth of payroll funding companies. Why? Because payroll is often the largest operating cost for businesses, which often have to front these costs until the revenue from new business rolls in which could be two to three months after the work is completed.

That’s where payroll funding comes in – where businesses can exchange 30- to 90-day invoices for an infusion of cash today.

An increasing number of businesses are catching on to the benefits of payroll funding, which is driving the growth in that industry. The challenge for businesses is there are dozens from which to choose and, as if the case in any fast-growing industry, not all payroll funding providers are the same. Some may specialize in specific industries, some operate only as middlemen between funding sources and their customers, and some aren’t very transparent with their fees. So, how can a business quickly narrow down the choices to one or two payroll companies that are right for their particular needs? By asking the right questions.

Here are 5 of the most important questions to ask of a payroll funding provider along with the red flags that might pop up in their answers.

What is the payroll funding provider’s reputation?

It’s your money so, there’s nothing more important than the reputation and integrity of the financial institution you choose to work with. Stay away from companies that haven’t been around long enough to establish a reputation – less than 10 years. Do a deep dive into their background on Dunn and Bradstreet and eliminate any company that doesn’t have at least an A+ rating with the Better Business Bureau. Google around for company reviews and red flag those with more than a few bad reviews.

Does the payroll funding provider understand your business/industry?

Payroll funding providers are also referred to as invoice factoring companies because it is a form of invoice factoring. But, if it is an invoice factoring company that dabbles in payroll funding, you may not be getting the experience and expertise needed to serve your particular payroll needs. A good payroll funding company understands the challenges of meeting payroll and has the capacity to adapt its process to your process for a more seamless and responsive funding relationship.

 Does the payroll funding provider charge competitive rates and fees?

If a payroll funding provider is a real player in the industry, it should offer competitive rates. But there are a number of factors involved in determining rates and total costs. While the price is an important consideration, you need to carefully scrutinize the terms of the agreement where you might find hidden fees, mandatory minimums, and volume requirements. A provider may offer a very competitive factoring rate but then layer on a lot of additional charges, such as application fees, monitoring fees, and processing fees. It may be better to go with a provider that charges a slightly higher rate if they have minimal or zero additional charges.

How quickly can invoices be funded?

The whole reason for working with a payroll funding provider or any invoice factoring company is you need reliable access to capital in near real-time. Generally, once you have a relationship with a provider, funding can be approved and delivered within a day, sometimes within hours. It may take up to two or three days for your initial account and approval, but the process should be fairly turnkey after that.

Is the payroll funding provider affiliated with a bank?

Many payroll funding companies operate as middlemen between their funding sources (typically a bank) and their customers. As such, they have to pass their borrowing costs onto their customers. Also, the process can be slowed by the extra steps needed to transfer funds from the bank to the middleman to you the customer. Some payroll funding companies are bank-owned or associated with a bank where they have direct access to the bank’s funds. This not only cuts down on the cost of funds, but it can also accelerate the process for quicker delivery of funds.

As you begin your search for the right payroll funding company, use the answers to these questions as your guide. The more you understand what’s important for a successful relationship with a payroll funding company, the more control you’ll have over the process.

We invite you to start your search at where you can search for companies by state.