Payroll Funding

One of the most difficult to meet cash flow needs of a growing or startup business is payroll funding. If your business bills clients on terms then covering a weekly payroll is a huge challenge. Payroll is relentless and the working capital needed wants fed on a timely basis. The money coming in from your Accounts Receivables on a consistent and timely basis? Not so much…rnWhat can a startup or fast growing company do? Payroll Funding through Factoring…rnFactoring or the purchasing of your accounts receivable primarily looks at the credit worthiness of your client. Most Factors looks at your business in a way that:

• Startups are no problem
• Personal credit issues can be mitigated
• Client Concentration can be managed
• The Factor becomes your defacto Credit Manager
• Funding can happen very fast
• Your ability to grow the business in not hampered

rnThe fourth point, the Factor becomes your credit manager is critical. Since your working capital is precious, you cannot afford any bad debt. There is only one thing worse than no sales, that’s selling it and not getting paid. A good Factor will help you pre-qualify potential clients and also offer insurance against a client filing bankruptcy. Even if Factoring costs you 1-2% per month, you save the expense of a Credit manager. Also, you typically decide how much money you need to cover payroll so not all invoices need to be funded.rnWhen it comes to approaching a Factor about your funding needs, keep these points in mind:

• Have good books and record-the cleaner the invoicing and accounts receivable, the easier it is for the Factor to get you funded.
• Have your workman’s comp policy and other insurance readily available.
• Talk to the Factor about potential client’s so they can pre-approve a dollar amount of credit.
• Don’t hide and return or credit memo issues

rnFactoring is not the only option for payroll funding, but if you sell your products on terms to credit worthy buyers if is the fastest and sometimes only choice.rnWhat about Traditional Banks as an option? If your business shows a profit for 2+ years on the tax returns, is profitable year to date, minimal customer concentration issues, your personal credit is good; then you can probable qualify for a line of credit based on your Accounts Receivables, hard assets and/or your ability to cover the debt payment from cash flow.rnYour cost of capital can be very low (3-6%) depending on size of the loan facility and the variables above, but most small businesses do not qualify for bank financing.