Payroll Funding: What It Is and How It Works

Have you heard of payroll funding?

This is when a staffing company offers a third-party company to buy its accounts receivable.

This third-party company then loans funds to a staffing company to cover its payroll expenses.

It’s a great way for a staffing company to focus on its business operations without stressing about making payments. It takes the hassle out of the payroll process.

Here’s what you should know about how payroll funding works.

The Basic Steps of Payroll Funding

The first step is when the staffing company completes work and then sends invoices for its services.

Next, the staffing company sells its accounts receivables to the payroll funding company, such as Your FundingTree. The payroll funding company will then give you up to 90% of the invoice to cover payroll.

After your customers pay you in full, the payroll funding company will deposit the remaining balance into your account. They will deduct a small transaction fee.

Now let’s look more at how it works and why it might be right for your staffing company.

Costs of Payroll Funding

This always depends on the service you choose and the funds you request. But as a general rule, you can expect the cost of funding to range between 1.5% to 2.5% per month.

Sometimes the rate can be even lower than this. It also depends on your company’s credit quality. You can also negotiate your rate with the payroll funding company.

Now let’s look at the major advantages of payroll funding and how it helps your company.

Cash Flow

One of the biggest issues that any company worries about is cash flow. Without it, you can miss out on payments and even run into legal issues.

Choosing to work with a payroll funding company brings you peace of mind as you don’t have to worry about cash flow. They’ll know the deadlines and when to supply you with the cash flow.

Same Day Funding

Another great advantage of payroll funding is that you can expect to receive funds on the day you request them.

Usually, you will send your invoice to the payroll funding company. This can be sent via fax, email, or through internet upload. Within a few hours, you can expect to receive the funding.

Straightforward Fees

The fees for payroll funding are straightforward and easy to understand. There are flat fees for the service. As such, you don’t have to stress complex calculations to decide which payroll funding service you want to use.

There are also no hidden charges with payroll funding. You can choose a deal or package that works best for your needs.

Great Payroll Processing Choices

You can expect a payroll funding service to choose the best payroll processor for your staffing company.

But the best advantage is that you can also choose your payroll processor. The payroll funding service will be happy to accommodate your choice. They can also advise you on finding the ideal payroll processor.

Excellent Customer Service

Another great advantage of a payroll funding service is that they offer excellent customer service.

You can expect them to answer questions on how often to bill your clients. They’ll help you arrange your finances so that you don’t have to stress about cash flow.

When you search for a payroll funding service, make sure you contact them first. It’s always best to speak to a customer service agent to help you assess the service.

You want to make sure you have a good interaction with the agent. If you find that they’re helpful, you can be assured that the payroll funding service is of high quality.

Easy Barrier for Entry

Many staffing companies struggle to find banks or other companies to offer them loans.

Often, without a steady cash flow or savings, it becomes difficult for a business to survive. With payroll funding, it’s easier to get approval. As long as your clients are reputable, you can expect to receive payroll funding.

Your financing options also grow as your relationship grows with a payroll funding service.

As you continue to add creditworthy clients to your staffing company, you can expect to receive more financing options. You might also be able to re-negotiate lower rates.

You also have more flexibility when you work with your clients. You can give them more time to make their payments to you.

With payroll funding, you can receive your payment fast while you wait for your clients to pay at a later stage.

It also opens doors for later financing options. If you have a track record with a payroll funding service, it improves your financial reputation. This can win you favors with banks and other money lenders.

Now let’s look at how you can qualify for payroll funding. You can follow these steps to make sure your staffing agency meets these requirements.

How to Receive Payroll Funding

First, you want to make sure that you have a few great clients under your belt. You want to make sure you provide regular services to these clients. This way, you can show a bundle of invoices to your payroll funding service.

Then, you contact the payroll funding service and share your invoices with them.

The payroll funding service will then investigate your clients. They’ll determine the client’s creditworthiness.

Once they approve you, you’ll get assigned to an account manager. This account manager will be your point of contact when you need to secure funds.

On the day you need your funds, you send a copy of your invoice. In most cases, you’ll receive 90% of the funds. You will then receive the balance minus transaction fees when your clients pay their balance.

Find Your Payroll Funding

Now you can find payroll funding options to help your staffing agency. Make sure you work to meet the requirements to qualify.

You’ll find with payroll funding that you can grow your business much faster. You’ll earn a trustworthy reputation and benefit from getting future loans for your business.

Please share this guide with other entrepreneurs seeking payroll funding. And don’t forget to browse our website for more business tips!