One of the biggest stress factors for a small business owner is making sure that they are able to make payroll. Over the years, I have heard this repeatedly from my clients, friends and family members that are small business owners because they know they are responsible for another person’s (and their family’s) livelihood.   

Unfortunately, due to a variety of reasons, many small business owners find themselves in a situation where they do not have the cash flow available to make payroll.

Tricks of Payroll Financing

Typically, most employers know well before a given payroll period that they will not have the funds necessary to make payroll. For a small business owner, this is one of the worst situations to be in and can account for many sleepless nights while they try to figure out a way to make that next payroll.

Below are a few suggestions for making payroll if you are short on funds. 

Option 1 – You can tap into personal savings accounts or credit cards to make payroll. If these resources are available, this is one of the fastest options. However, it is only a short-term solution as resources are limited and doesn’t solve your ultimate cash flow problems. 

Option 2 – You can apply for a traditional bank loan or line of credit. The downside of this option is two-fold. First, a traditional bank loan takes 30 to 90 days to get approved and to close. Second, your personal creditworthiness as well as the financial stability of your company are the primary requirements for approval, so if your personal credit is not great and your company is not cash flow positive, this is not a realistic possibility.

Option 3 – You can borrow from friends or family. My recommendation is that this should be done only in the most dire of circumstances, as borrowing from friends and family typically causes a whole host of other problems if you fall short on paying back the loan. The situation can become very tense and uncomfortable. This really is a last resort option. 

While the options above are valid solutions, they are not long-term solutions. Most small business owners I know would do whatever they had to do in order to pay their employees, but these are not great solutions – so what is the best option for payroll financing?   

The answer is FACTORING!

Factoring is a fast, simple, and flexible way to obtain the funds necessary to make payroll. Typically, a company’s accounts receivable is their largest asset. However, customers may take 30, 45 or even 60 days to pay invoices, and you have a payroll to meet every week (or every two weeks). This creates a cash flow crunch. If you are unable to pay employees, you face many challenging issues beyond just losing employees.  

Using factoring is the simplest and most efficient solution for payroll financing. If you have outstanding receivables, a factoring company advances between 70% and 90% of the face value of the invoices. The factoring company collects payments from your customer when the invoice becomes due.  

Treats of Payroll Financing

Your employees are your most important assets and paying employees on time is vital to ensure that your employees are happy, loyal and continue to contribute to the success of your business. Don’t let the stress of making payroll shift your focus from growing a successful business.  

Let the professionals at Fast A/R Funding show you how factoring helps you meet your payroll deadline and provides a long-term solution to improve your overall cash flow situation. Download our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.