Payroll Factoring, What You Should Know
Let’s be clear, all companies have invoices. So why not put them to good use. Making invoices work for the company will pay off in the long run. A good number of small companies, end up closing their doors due to financial problems.
Why Factoring Services are Better than the Alternative
When they realize that they are not able to make payroll, they’ll take out loans. Loans can easily put a company further into debt. Some loan companies can charge as much as 30% interest for one loan. If the borrower can not make the payment when due, the loan company has the right to cash the anyway.
This can result in a bounced check. Since the check is usually in the company’s name, this can reflect harshly on the company’s financial history. And in many cases, there are numerous fee applied when loan payment can not be made. So now the company has the original payment amount and the accumulated late fees.
So, the company could be worse off now, than when it was initially. The bank could also turn to cash advances for businesses. With this alternative, the company could have up to 6-12 months to pay back the amount. This sounds like a better choice, however, there is a stringent requirement of having to come up bank statements for the past 6 months.
Suppose the company just opened its doors 4 months ago? Or they will began to cut the hours of employees or even laying people off. All of these decisions can make the issue worse. In too many cases when small businesses turn to payroll loan providers they are charged huge rates. Whereas the rates of factoring alternatives could be as low as 1%.
How Factoring Actually Works
With payroll factoring, all of the company’s invoices are collected. The invoices are actually turned into money, money that the company can really use. The company will receive in advance the monies due in the invoice. This way the company does not have to wait, for the invoice to be paid. Now they are able to make payroll, without taking out a loan or asking friends and relatives.
The fees applied for the payroll factoring service will come out of the invoices. This is excellent news for the company. Now they do not have to be concerned about payments. So, all the company has to do is gather up all of their invoices and give the responsibility to the payroll factoring company.
After joining a factoring service, the company will notice that there is a significant amount of office support time saved. The time that was spent on back office staff has been reduced greatly. The reason is because their is a new staff taking care of your invoices. This can be a huge relief for many companies. That staff can now be used in a better way, which profits the company. Dealing with financial paperwork can be time-consuming, so if there is a company that can alleviate that, go for it.
The other great thing about this service is that a credit check is not required. Many companies find themselves with a credit score lower than when they started out. The reason for this has to do with struggling and being able to pay bills on time. So after a while their misfortunes reflect on their credit.
Factoring services also help with credit recovery. They can advise and guide new companies on the next best steps to take. They can also give advice on how to become established quicker. They could be considered advocates for the little guy.