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When you own a small business, operating costs can be quite hefty—especially when your cash flow doesn’t exactly sync up with your expenses. Payroll, the wages or salaries paid to your employees, can comprise a large part of these costs. If your small business can’t pay employees on time, then payroll funding might be the answer.
Payroll funding solutions allow you to pay your employees right away, even without cash on hand, by selling invoices or receivables to obtain it.
When you often receive delayed payments from customers or clients—especially due to the nature of your business or industry—paying employees can be difficult, especially with other business expenses to think about.
82% of small businesses fail due to cash flow issues. Rather than waiting to pay employees—and risking that they quit, or stop working until they receive payment—you can cover payroll right away.
By eliminating cash flow issues, payroll funding can also be a helpful tool as you take steps to grow your business. With payroll up to date, you can start pursuing new, larger jobs that could help you take things to the next level.
Well, how exactly does payroll funding work?
When you’re running low on working capital and payday rolls around, you need another way to pay employees.
Payroll funding solves that problem by utilizing your receivables and invoices to obtain cash. Instead of waiting around for customers or clients to make payments, you can capitalize on those invoices right away by selling them.
By selling the invoice, you can receive cash for up to 80% of the value of the invoice. Then, you can put it toward any costs your business is facing, including payroll, as well as other expenses.
When customers do pay their outstanding invoices, that money will be routed directly to the lender or financing company. However, your customers and clients won’t be alerted that you’re utilizing a factoring company.
Depending on your business, you may also qualify for other payroll funding solutions, which we’ll delve into later.
Regardless of your industry, payroll funding can be a valuable lifeline. In a pinch, it gives business owners the extra cash they need to make payroll—regardless of cash on hand.
That being said, certain industries suffer from delayed invoice payments worse than others. In these businesses, it might make sense to utilize payroll funding on a more consistent basis.
The staffing industry is one of the most popular industries to utilize payroll funding as a growth tool, and for good reason.
Staffing companies generate revenue by successfully hiring employees in new roles. For this reason, they may spend weeks working on a placement before finding the right candidate. Payment might not come for another month or two after that—leaving the business strapped for cash. On the other hand, employees have already completed the work, and deserve compensation.
Through payroll funding, staffing agencies can get the cash they need to pay employees right away, and pave the way for growth.
For most medical practices, patient copayments make up only a small percentage of working capital. Instead, most revenue comes from insurance company payments. But because of the way insurance companies make these payments, payouts are usually quite delayed.
Most insurance companies pay medical practices well after the visit to begin with, but other errors can cause these payouts to be delayed even further. Even a slight coding error might push payment off for a few weeks.
Payroll funding ensures that you can keep your practice moving forward, instead of waiting on receivables.
While construction business owners have to lay out cash for the job, they’re usually not compensated right away. Because of the ebbs and flows of the industry, most construction payments are delayed.
To continue taking on high-paying jobs, many construction companies utilize payroll funding. This allows them to keep employees satisfied, while generating revenue.
So, your business needs funding to meet payroll needs. What are your options?
There are a few payroll funding solutions that might work for your business:
When it comes to payroll funding for your business, you want to ensure you’re receiving the best possible option on the table.
At National, we work within our marketplace of 75+ lenders to find you the best rates, terms and amounts. Before moving forward, we’ll explain all of the options available within our marketplace, and help you select the one that best fits your business.
To get started, apply now!
National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Joseph Camberato, CEO at National Business Capital & Services, developed a passion for business at a young age. Joseph has a true respect for anyone who owns a business and enjoys engaging them in discussions of how they “made it happen.”