How Much Does Payroll Funding Cost?
Payroll funding rates, also called factoring rates or discount fees, can vary depending on your company; however, they are typically 1 – 5% of the invoice value. Factors that influence the rate you receive can include:
- The creditworthiness of your customers
- The amount you plan to factor
- The amount of time your invoices tend to remain outstanding
Advantages and Disadvantages of Payroll Funding
Any form of business financing comes with its respective pros and cons, and payroll funding is no different. Below is a summary of the biggest advantages and disadvantages there are to using payroll funding.
|Pros of Payroll Funding ||Cons of Payroll Funding |
|Quick and reliable access to cash ||Reduced profit margins given the cost of funding |
|Free customer credit checks on new and existing customers ||Potential hidden costs from irreputable payroll funding providers |
|A scalable financing solution ||– |
|Accounts receivable collection and management ||– |
Payroll Funding Advantages
The main benefit of payroll funding is a boost in cash flow which allows staffing company owners to meet payroll and invest in growth sustainably. Additionally, payroll funding is easily scaled, meaning this financing solution can grow with your company.
However, there are some additional benefits that come from using payroll funding to finance your staffing company that are not quite as obvious as the above. For example, by working with a payroll funding provider, you get access to free customer credit checks. This is because a payroll funding company wants to make sure any invoices they factor are for creditworthy debtors that will make reliable and on-time payments. This means that each time you bring on a new customer and want to factor their invoices with your payroll funding company, you will receive a complimentary customer credit check as well.
Additionally, payroll funding companies provide back office benefits, specifically by supporting your AR processes. Your customers will remit payment to your payroll funding provider, meaning you have less accounts receivable collection and management responsibilities on your plate.
Payroll Funding Disadvantages
As with any type of business financing, there are some reasons why payroll funding may not be the right fit for your company. The biggest downside tends to be the cost. Payroll funding rates are typically 1 – 5% of the invoice value. Additionally, depending on the provider you choose to factor with, you may be faced with additional hidden fees, such as lockbox fees or monthly access fees.
However, if you choose to get payroll funding with altLINE, you can rest assured that all of our fees are transparent, so you won’t be surprised by hidden fees after the onboarding process.
Is Payroll Funding Easy?
Yes, payroll funding is very easy, particularly when compared to other types of traditional financing or bank lending. Because the provider is counting on your customers to ultimately pay your invoices, they care more about the creditworthiness of your customers than your business. That allows business owners with poor credit or limited operating history to still acquire payroll funding.
Payroll funding is not a loan – it’s a sale of your assets (invoices) in exchange for cash. That means that the financing does not count as debt on your balance sheet and only minimally impacts your credit (simply from the initial credit checks). This is another reason staffing companies find payroll funding to be a preferable option for immediate working capital needs.
Are Some Payroll Funding Providers Better Than Others?
Yes, there are certainly better payroll funding companies than others. Some specialize in the staffing industry, while others serve a broader range of invoice factoring customers. Not all companies will be transparent about their fees and terms. As a responsible business owner, you need to protect your staffing company by thoroughly vetting your payroll funding provider, ensuring that you read the fine print of your agreement. Trust is critical with any financing, and it’s no different for payroll funding. Do your research and select a company you can trust, and make sure you have an exit strategy.
Is Payroll Funding Right for My Business?
Payroll funding is specific to the staffing industry. If you own a staffing company and struggle with slow paying customers, long invoice terms, and other cash flow issues, payroll funding may be the perfect solution.
If your business falls in any other B2B industry, but you similarly struggle with cash flow issues, you should consider invoice factoring – a more broad solution that will likely fit your needs. Read our guide on how to factor invoices for more details.
What Will I Need to Get Started?
Every payroll funding company has its own unique process for approval, but to get started, most simply want to get a better understanding for your business, your customers, and your invoices. They’ll likely request a financing application, proof of identification, invoice aging, and customer list. Be prepared to provide information quickly to take full advantage of the fast turnaround time that payroll funding can offer.
Partner with altLINE
Here at altLINE, we offer top rated payroll funding and invoice factoring services. Not only do we have an A+ rating from the BBB and are highly recommended on Trustpilot, our team offers best-in-class customer service to make the payroll funding process as easy as possible for you and your company.
Additionally, altLINE is an extension of the Southern Bank Company, meaning we have direct access to funds and are federally regulated, letting you rest assured that your financing partner is transparent and trustworthy.
To get started with your application, request a free quote today, or give us a call at +1 (205) 607-0811.