In a payroll funding, the loan requires you to pledge the accounts receivables as collateral. Instead of the company collecting the debts that customer have to pay, it refers them to the lender. These are the pros of payroll funding.
These loans increase cash flow in the company for you to have enough working capital. The rest of the money belongs to your company after the lender deducts a percentage that you agreed upon because the lender is not entitled to the entire amount the customers pays.
The loans have an interest rate you can afford. The interest rate you will be charged will depend on the value of the business assets you, your company’s credit history, the customers’ credit ratings, the amount of money you are requesting and the duration the customers will take to pay the debt they owe you.
There is a lot of flexibility when paying the loan. You are free to negotiate for an affordable interest rate and payment plan that you will be comfortable with. You can compare the terms of payment of various lenders and choose the one whose terms you will be comfortable with.
This funding will not leave you with a debt on the balance sheet because everything balances out. The payroll funding is a liability, but the accounts receivables are the collateral, and they are assets hence they balance each other.
The funding improves job security for the workers. Laing off workers because of financial issues in the company hurts both the employers and the employees but when the company gets payroll finding the workers will be paid without sending anyone home.
You will not only be able to secure the jobs of the employees but also make them financially independent when you pay them on time because most of the employees will not come to you asking for loans or advance payments. An employer feels humbled when the employees’ lives are economically transformed due to the salaries they earn from the company.
The funding allows you to satisfy your employees more hence they will work harder and increase the quality and of output. You can get the loan to pay your employees on time instead of delaying their salaries because of financial constraints in the company. It hurts employees to work but get paid late hence most of them decide to resign if the trend continues for a while.
Payroll funding allows a small business to hire the best talents from the market. Workers who have had sufficient experience and skills because of working for other companies will add value to your team and assist in in-house training hence they often request a higher pay than the amount they were earning in the previous jobs. Your company will be able to pay the salaries and other allowances to the employees when you get payroll funding.
You can pay payroll taxes using payroll funding. The tax authorities will not let you go scot-free if you do not pay payroll taxes and that will endanger the existence of your company. If you pay payroll taxes late, you will be fined, and those are debts you should avoid because they are valuable to the company.