Payroll funding is a financial service that provides businesses with the cash they need to meet their payroll obligations. This type of funding is especially useful for businesses that experience fluctuations in their cash flow, as it can help them to manage their payroll expenses even when they have limited funds available. This has been especially helpful during recessive economies. Staffing and recruiting agencies benefit from funding specifically due to the nature of the payroll and billing cycles they work with.
The process of payroll funding typically involves a third-party financing company providing a loan or line of credit to a business. This funding is specifically intended to cover the costs of payroll, including wages, salaries, benefits, and taxes. Once the financing company has provided the funds, the business can use them to pay their employees and meet other payroll-related expenses.
Who Offers Payroll Funding?
- Banks – through lines of credit
- Funding Companies
- Factoring Companies
- Employer of Record Services (EOR)
What are the benefits of Payroll Funding?
The main benefit to staffing and recruiting firms is to maintain cash flow while waiting on clients to pay invoices. Typically funding services will pay employees that are working for clients, prior to the client paying the invoices for those workers. This allows the recruiting firm to focus on finding good workers and clients, and allows the funding company to front the cash for those employees prior to getting paid.
There are some restrictions when working with some companies that offer funding. Many funding companies and banks typically only offer funding for a certain amount of days, 30, 60, or 90 days as an example. If clients don’t pay back in those time frames the funding company may come back to the agency for the cash, issue penalty fees, and/or stop funding all together. Conversely invoice factoring companies only pay staffing firms 85-93% of invoice amounts, leaving the firm with lower profit margins. Additionally those factoring companies may also hold the staffing firm accountable for unpaid invoice like the payroll funding companies do.
How do EORs offer funding?
Employer of Record platforms like FoxHire include payroll funding in their back office support services. This funding is wrapped into an entire outsourced back office, which also handles onboarding, payroll administration, insurance, benefits, and more. This takes the entire back office component of a staffing firm off the plate of the owners so they can focus on recruiting and finding clients. Additionally some EORs like FoxHire do not have risky or restrictive policies when it comes to payroll funding, which provides a lot of peace of mind for staffing firms.
In conclusion, payroll funding is a financial service that provides businesses with the cash they need to meet their payroll obligations. This type of funding can provide several benefits to businesses, including ensuring that employees are paid on time, helping to manage cash flow, and avoiding penalties and other negative consequences associated with missed or late payroll payments. If you are interested in funding for your business, it is important to carefully evaluate your options and work with a reputable financing company to find the best solution for your needs.