7 Staffing Agency Payroll Funding Ideas You Need to Know

Posted at May 12, 2020 » By : » Categories : Accounting, Payroll, & Taxes,Business Funding »
payroll funding

It may seem like businesses have come to a grinding halt due to the coronavirus epidemic. While that’s true for some industries, others are overwhelmed and need to hire thousands of employees which is where payroll funding comes into play.

This presents a huge opportunity for staffing agencies. These companies need to hire staff quickly, which means you have to ramp up your efforts to handle the workload.

You may want to hire more staff, but you don’t have the cash flow right now. Payroll funding is one of the ways you can fund your payroll to grow or to meet these challenging times.

Read on to find out what payroll funding is, how it works, and other ways you can fund your staffing agency quickly.

1. What is Payroll Funding?

How much do you have outstanding in unpaid invoices? You probably have quite a bit because it’s typical for staffing agencies to get paid via sending invoices to its customers. Invoices can take anywhere between 1 – 3 months to be paid in full.

In the meantime, you have a business to run. You need that cash to pay your employees or to hire new ones. Without that cash, you’re either stuck and can’t grow or you potentially damage your employee relationships.

Payroll funding is a way to fund the payroll of the business by leveraging your outstanding invoices. You sell those invoices to a lender who will advance you cash based on the amount of money due from the unpaid invoices. It’s a quick way to solve your payroll cash flow problem.

2. How Payroll Funding Works

Does payroll funding seem too good to be true? Let’s take a look at how it works.

Similar to getting a loan or another type of business credit facility, you have to determine how much financing you need for your business. It will help if you total up the outstanding invoices for your business that are due from clients. You collect the documentation related to the outstanding invoices and apply for a loan.

Once approved, you could get up to 95% of the outstanding invoiced amount as a loan. When your clients pay the invoices, you send those funds to the lender to pay down the loan.

In some cases, lenders will fund your invoices and directly collect on them, leaving you out of the collections process. That makes it imperative that you choose the right lender because an aggressive collector could damage your client relationships.

3. Payroll Funding Doesn’t Show on P&L

One of the key advantages of payroll funding is that it doesn’t show up on your profit and loss statements. In other words, it doesn’t have a negative impact on the financial health of your business.

With other forms of financing, such as credit cards or loans, the outstanding debt shows up as a liability on your P&L sheet. That doesn’t happen with payroll funding because you’re leveraging existing assets (unpaid invoices) for a cash advance.

4. You Have a Stronger Financial Position

Payroll funding can strengthen your financial position in a number of ways. It can be used to increase the capacity of your business. The more capacity you can handle, the faster you can grow your revenue.

It gives you the cash that you need and can be put to use immediately. It’s a very fast way to get an influx of cash to your business without taking on debt that can impact your profits for years.

5. Payroll Funding is Quick

With other forms of financing, it can take weeks or months to get approved. It makes sense because lenders want to make sure that you can pay your loan back. Payroll funding is different because you’re using unpaid invoices as collateral.

You know the money is coming in, it’s just a matter of timing. That can speed up the approval process and allow you to get the cash you need in days, not weeks.

6. Payroll Funding is Affordable

Payroll funding is different from other forms of financing because it’s more affordable. Most lenders will charge 1% to 4% of your unpaid invoices. That beats longer term loans that can cause your business to pay additional interest payments over several years.

7. Other Forms of Business Funding

What if you need more cash than you have in outstanding invoices? While payroll funding is a fast option, other forms of financing may be a better fit for your staffing agency.

Line of Credit

A business line of credit gives you access to cash that you repay with interest. It’s a revolving line of credit, meaning that you can borrow up to a pre-determined and agreed upon maximum loan amount.

SBA Loans

The Small Business Administration guarantees several types of business loans. With the guarantee coming from the government, lenders are more likely to approve your loan.

Term Loans

A term loan is like a typical installment loan. These loans can be secured or unsecured. You borrow a specific amount of money and pay the principal and interest payments together in monthly installments.

Use Cash Reserves

Cash flow is the lifeblood of any business. Without cash, you can’t pay your employees or your accounts payable. You just have a financially draining business. A lack of cash flow is often cited as the reason why businesses close.

If you’ve been fortunate enough to set aside cash reserves for a rainy day, you may be tempted to use them now. The thing is that it’s tough to replace your cash reserves, and once that money is gone, it’s gone. Payroll funding for staffing agencies allows you to hang on to your cash reserves for a longer period of time and still improve your cash flow.

Fund Your Staffing Agency Quickly with Payroll Funding

Maintaining the cash flow in your staffing agency is a challenge. If you want to add more staff or be able to pay your employees, payroll funding is an option. Payroll funding doesn’t impact your profitability.

It gives you the ability to get the money you already earned faster. Apply today for your payroll funding loan.