Payroll funding is sometimes referred to as Recruitment Finance this helps businesses who supply temporary contractors to meet their salary bill at the end of each week or month.
This type of funding can be a helpful way for businesses to manage their finances. With payroll funding, businesses can receive advances on their future income, which can then be used to cover expenses like payroll or other bills.
This can be a helpful option for businesses that are struggling to make ends meet, as it can provide them with the funds they need to stay afloat. Payroll funding can also help businesses to avoid bounced cheques or late payment fees, as the funds are typically available on the day that they are needed.
However, it is important to note that payroll funding is not without its risks. If a business is unable to repay the advance, they may be faced with significant fees or interest charges. As such, it is important to only consider payroll funding if it is absolutely necessary.
It is suitable for recruitment companies, cleaning contractors and security companies that use lots of labour, with little materials. There are a number of different payroll funding components available.
Different funders offer either all or parts of these components and we can help you find what you need.
Should you be a new start company it may suit you to outsource your payroll function that could be a major time-saver for you. Payroll Funding for services businesses is the perfect fit.
What is Payroll Funding?
Payroll Funding is a financial solution for business owners, it allows payment to be made on the businesses payroll. Business owners have a legal obligation to pay your staff on time, and failing to make the payroll run could place the future of the company at risk. Failing to make payroll can also put your staff at a huge disadvantage.
One late payment can be enough to put a staff members at financial disadvantage, undermine their confidence in your business and demotivate them at work.
This type of borrowing is a fantastic fit say for a new startup recruitment agency that needs to pay staff, but the customer has not as yet paid them! It allows you to settle your liabilities with HMRC and ensures your employees are paid on time.
Luckily, there is a solution. Payroll funding is a form of invoice finance that has been adapted to help small- to medium-sized businesses make payroll every month.
Components of Payroll Funding
The task of issuing payslips, managing timesheets and expenses as well as issuing P45s can all be undertaken by our bespoke, specialist finance services.
With our recruitment agency payroll funding, payment delays due to cash flow can be a thing of the past, swift and sleek payments are made exactly when they should be. Our experience of over 10 years and our startup funding solutions mean temp workers can be kept satisfied by your services and your reputation can be maintained as a reliable recruitment agency.
1. Payroll Funding – the payroll company will pay your salary bill (via a loan) for approximately 2 months – after which time the loan needs to be repaid with interest. This operates on a rolling basis and as your customers pay the loan gets reduced. Included in this service will be the maintenance of employee records, running the payroll and issuing pay-slips.
2. Invoicing – based on the timesheets your contractors submit, invoices can be produced and sent to your customers.
3. Credit Control – includes chasing your customers for payment by telephone and mailing statements.
4. Factoring – once the invoice to your customer is raised you can draw down up to 100% of the invoice value, giving you access to your profit without having to wait until your customer actually pays.
5. Bad Debt Protection (credit insurance) – insures you against the risk of your customers going into administration or liquidation, giving you peace of mind.
How does payroll funding work?
Payroll funding works by supporting the back office elements listed above, at the same time the payroll finance company will release the funding to pay temporary workers’ wages. Here is how payroll finance works:
- Your business will forward the timesheets to the payroll finance provide
- An invoice will then be raised and send it to your client, this is based on the timesheets supplied
- The funder then pays the temporary workers wages, they calculate the tax deductions and other elements such as student loan repayments, pensions and maternity pay
- Any funds not utilised are then forwarded to your business
- The funder will then collects payment from your client
Advantages of Payroll Funding
There are a number of advantages to payroll funding, we have included a few below:
Gives Consistent Cashflow
Without payroll finance, it can be difficult to know when payment will arrive. Wipe out the stress and have the confidence in knowing that payroll will be met each week.
Spares You Time
Some factoring companies offer services to help you streamline your invoicing and accounts receivable collection processes.
Enables You to Grow
Payroll funding makes it easier to accept new contracts and obtain growth, because the financing from payroll factoring companies allows for growth.
Does Not Add Debt to Your Balance Sheet
Unlike bank loans, payroll funding does not create debt on your balance sheet. Instead, it’s debt-free financing that grows as you grow- up to £20 million month to month.
Helps Pay Your Bills on Time
Since you won’t be waiting for customer payment, paying down bills is less of a struggle. Even creating a rainy-day fund is possible when you can count on your consistent cash flow.
Allows Flexibility
Your clients need to know that you have the financial capacity to take them on. With payroll funding, your financing amount grows as you grow, giving you greater stability and enhancing your brand.
Gives Your Staffing Agency Financial Security
Payroll funding gives you the confidence that you’ll have enough working capital to pay your employees, bills and even grow your staffing agency. The fear of a negative cash-flow statement due to slow-paying customers is alleviated, because you’ll be paid on your invoices immediately.
Remove the burden of back office administration
Online payroll services are simple and easy to use, with our cloud based portal allowing you to effortlessly manage the whole back office process wherever, whenever.
- Go paperless – Our online payroll services enable you to manage all documents in the cloud keeping them safe and secure and accessible from anywhere.
- Payroll management – Full management of your payroll processing responsibilities and full integration with Sage Payroll.
- Timesheet management – Process all timesheets, even manual ones, or one click online timesheet authorization immediately and seamlessly.
- Real-time reporting – From financial forecasting to timesheet management, real time reports help you keep on top of business performance.
What do Payroll Funding facilities include?
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Processing and calculating temporary workers’ wages and holiday allocation
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Production and postage of payslips
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Raising and sending invoices to clients
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Dedicated credit control service
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HR support
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100% funding of temporary workers’ wages
What is the cost for Payroll Funding?
For Example potential costing on a £1000 invoice:
Service Fee- 2.5% Charged on every invoice- £1000 x 2.5% = £25
Bad Debt Protection- 0.7% – £7 (OPTIONAL)
£1000- £25= £975 to advance against
80% x £975- £780 available to you
Assuming you lend this money for 4 days at a discount rate of 4.5% annual (0.375% per month) this will cost £4.33
This invoice will cost £29.33 to factor without bad debt protection of £36.33p with BDP
Payroll Funding Quotation
Invoice Funding are one of the UK’s leading Invoice Finance Brokers. Since 2010 when we started trading we have helped over 100 Recruitment Agencies gain funding solutions for their payroll. If you feel we can help support your business simply complete the online enquiry form
F.A.Q’s
What is Payroll Funding?
Payroll financing (a form of small business invoice financing) is specifically designed to help small- to medium-sized businesses make payroll every month.
How Does Payroll Funding Work?
The process of payroll funding with factoring is simple, which is why it’s used by many different types of businesses. After you get set up with a factoring company the process goes as follows: Serve your customers as usual. Submit the invoices you want to be advanced for to the factoring company. The factoring company will advance you the invoice amount, minus a small percentage for the reserve. Your customer will pay the invoice in full. The factoring company will release the reserve, minus a small factoring fee.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.