What is Payroll Funding?

What Is Payroll Funding and How Does It Work?

Staffing companies often fall victim to long invoice terms and slow-paying customers. At the same time, they’re forced to make payroll and other routine expenses, leaving them in the predicament of consistently not having enough cash on hand.

Payroll funding is a financing solution for staffing companies that allows them to access fast cash by paying a small fee in order to liquidate their invoices immediately. Read on to better understand what payroll funding is, how the process works, the pros and cons of using payroll funding, and how to find a quality payroll funding provider.

What Is Payroll Funding?

Payroll funding is a type of invoice factoring specific to the staffing industry. Just like invoice factoring, payroll funding turns a business’s outstanding invoices into cash by selling them to a third party at a discounted rate. The staffing company can then use the cash advance to pay operating expenses, including making payroll on time.

How Does Payroll Funding Work?

Once you’ve applied for payroll funding, and are approved, you will send invoices to your customer(s) as usual. The payroll funding company will purchase those outstanding invoices from your business and give you 80-90% of the cash value that day. From there, the payroll funding provider will collect the outstanding invoice payments directly from your customer(s). Once collected, the provider releases the remaining 10-20% invoice value to your business, minus a small payroll funding fee of 1-5%.

Here are the five simple steps to payroll funding:

  1. Your staffing company provides a service to your customer, then sends that customer an invoice.
  2. You submit that invoice to the payroll funding provider.
  3. The payroll funding provider advances between 80-90% of the invoice value to your business.
  4. Your customer makes the payment directly to the payroll funding provider, which goes into a lockbox in your name.
  5. The remaining 10-20% of the invoice value is released to you, minus a small payroll funding fee.