According to law, every business has to pay their employees properly. Because those payments are what they use for their livelihood. But sometimes, there will be delays in the payments for 15 to 90 days when the business owners don’t receive their payments according to the payroll cycle. In such cases, payroll factoring comes into action.

For businesses having outstanding invoices for more than 30 to 120 days, this technique helps in generating earlier cash flow. In this process, the invoice will be transferred from the main business to the third-party factoring company.

Types of payroll factoring available

There are basically two types of payroll factoring methods depending on the type of funding the business needs.

1.   Money only factoring

In this method, only money will be transferred into their accounts as per the requirement.

2.   Full-Service Factoring

In this type, along with money, there will be the provision of full services like printing the invoices, paying and filing the taxes, Filing quarterly and annual tax returns, and many more.

Advantages of factoring:

• There will be a possibility of paying the invoices without waiting for the money to come to the business directly.
• As there is a better cash flow, there are more chances for the business also to survive for more time.
• This method of payroll factoring is cheaper than any bank loan and is also very easy to obtain. If the size of the customers for that business is more, then they can save a lot of money.
• There will be an increase in the morale of the people working with the company as their payments are always on time.

Disadvantages of factoring

• They are not for businesses that don’t have many customers.
• This is a big business decision as many factoring companies will want a long-term deal with the business owners.
• If the customers are risky, the factoring companies will charge high fees.
• If there are scenarios when the clients fail to pay, then the client might have to pay more as an extra payment for the late fees.
• This can sometimes harm the relationships of the business with their customers because of the unforeseen problems with the payments.

Payment Options available in this factoring

There are many ways people can opt for payment methods in payroll factoring.

• The business owners can continue paying their clients once the lending company sends the required amount to their accounts.
• The Business owners will only handle the filing and paying of taxes as well.
• In some cases, the lending company can issue payments directly to the employees either by paying through physical checks or by depositing a payroll card which will work similarly to a debit card.

Conclusion

Because of this method, businesses can stay even though there is a lack in their finances. There is an option to borrow only the required amount of money, instead of waiting for the clients to pay back. This will be beneficial to any business having either full-time or part-time employees. This is a great way to save their savings in the initial stages when there is some delay in the payments from their customers.