It's common for growing Payroll & Contractor Management firms to get held back by cash flow gaps in client invoice payments.
Growing Payroll and Recruitment companies use payroll funding on a regular basis, and with more SMEs turning to outsourced payroll services, cash flow is critical.
If cash flow isn’t managed correctly- from incoming client invoice payments to outgoing wages, tax and superannuation- gaps can cripple growth.
Recruiters who manage a contractor and/or temporary labour hire business have the inherent problem of having to pay payroll before the client pays them.
Traditionally, a gap in cash flow meant business owners had to risk their personal assets in the form of equity (the owner’s own cash) or with a secured overdraft (a bank line of credit secured by the owner’s home or other property).
Let's take a look at some modern alternative options:
Modern alternatives to Banks & Invoice Factoring
Payroll funding offers an alternative to borrowing money from banks or invoice factoring providers, because it allows you to access funds against your client’s unpaid invoices as soon as they are raised- giving you instant cash.
A line of credit secured by your receivables allows you to draw down and repay funds when required, without the burden of requiring property security or using an invoice factoring service.
The new funding option simply extends a revolving line of credit against the outstanding balance of client invoices.
In the past, companies would use a service called invoice factoring; however, with the rise of cloud accounting, processes have now been automated. Lenders like Waddle can now provide a streamlined funding option without the administration, disclosure to clients or costs associated with lock-in financing contracts.
Costs for payroll funding are coming down
Over the past couple of years cloud accounting has become very popular. Some more advanced payroll companies also integrate with cloud solutions, allowing lenders like Waddle to integrate with the receivables in real-time.
This new technology provides a completely touch-free, almost zero-administration solution for the business, especially when margins are thinner or the business is in its first 1-2 years of growth.
Payroll companies that use invoice factoring are currently being charged on the face value of invoices they are raising, are locked into twelve-month contracts with minimum volume financing restrictions, and are prone to full disclosure to the end client about the funding.
It's time to review your current funding
Reviewing your current funding arrangements with your lender might just result in large internal-administration savings, quicker funding and lower erosion of profits.
If you're using cloud accounting, the cost savings associated with new lending options- compared to invoice factoring for payroll funding- are chalk and cheese.