What is Payroll Financing ?
Payroll Financing in google isn’t what you think
Type in google, “payroll financing”, and you will see a slew of companies all offering business funding. However 95% of all those listed are actually Traditional Factors. Factoring is actually over 4,000 years old and is a form of giving money to company in exchange for receivables going directly to the Factor. Account Receivable Factoring will advance up to 90% of the invoice to your business and will keep a predetermine fee when the remaining amount comes in. Depending on the industry, Factoring can be a low risk business for the Factor but charge a lot of money for the advance and traditional Factors will also call your clients to make sure the invoices are real alerting your clients to your business having financial problems. In addition, a Factor really wants a long term relationship .
The other type of payroll financing or payroll funding is spot factoring. A company, such as Financing Solutions will fund from $5k-$100k in as little as 48 hours based on evidence that you are running a good company, the your company will be able to pay back the money and that you have enough receivables to cover the funding requested . The payment is then spread out over a 5 week-6 month period.
Financing Solutions can be used for anything the business owner wants and most small businesses applying have sales in the $500,000-$7 million range but the money borrowed is typically going to be used for payroll.
When is traditional Factoring better for a business
The only time a traditional Factor is a better solution for a business is if the business is experiencing unbelievable growth over 2 years or more and needs constant cash during that time. Financing Solutions or payroll funding companies are a much cheaper and less obtrusive financing alterative allowing the business owner to keep more of their profits and to fund their company through current cash flow once the short term financing is completed.
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