In the opinion of renowned businesspeople, keeping employees motivated is one of the key ingredients one needs to make their company successful. As a business owner, it’s logical to assume that you’d like to make your business successful. However, if your company has clients with long net terms, you may find it difficult to accomplish this feat, as you may find it challenging to pay your employees on time. Time and again, companies have closed shop due to being unable to pay their employees on time. To avoid such a predicament, if your company has clients with long-term nets, you should consider adopting factoring for payroll.
What Is It?
Payroll factoring refers to a mode of generating early cash flows for companies with outstanding invoices that have long net terms. It involves the sale of the said unpaid invoices by the affected business to a third-party business known as a factoring company. Using the earnings from the sale of the outstanding invoices, the affected business can then pay its employees.
Types of Payroll Factoring
There are two forms of factoring for payroll. They include:
● No-service Factoring
No-Service factoring is a type of payroll factoring where the factor only purchases your company’s invoices. Suppose you select this type of payroll factoring for your company. In that case, your company will maintain the responsibility of processing the earnings, filing the tax returns, and disbursing salaries to your employees. If your company only requires a payroll funding solution and not comprehensive business support, this payroll factoring option is a convenient option for your company.
● Full-Service Payroll Factoring
Full-service payroll factoring refers to a payroll factoring option where in addition to purchasing your outstanding invoices, your factoring company of choice also processes your employees’ paychecks, files the associated tax returns, and notifies your customer of the agreement between you two. If you select this type of payroll factoring for your company, your company will enjoy superb business support.
Benefits of Payroll Factoring
Over the past couple of years, many businesses have been adopting factoring for payroll as a payroll funding solution. This can be attributed to the fact that factoring for payroll has proved to be a rewarding financial move. If you choose to adopt any of the mentioned payroll factoring options, here are some of the wonderful rewards you’ll enjoy.
Ability to Protect Your Savings
On numerous occasions, business owners have been forced to source the funding for their employees’ payrolls from their savings. Quite several times, this move has left a lot of business owners penniless. If you adopt a payroll factoring option, you can rest assured of not suffering such a fate as you won’t have to pay your employees from your pocket.
If you’re unable to finance the paychecks of all your employees, you may have to lay off some of your committed employees. However, if you’ve taken on payroll factoring, you can avoid firing your talented employees as you’ll be able to pay them using the cash you’ll receive from your factoring company.