Dear Just Ask Judy:
I am having trouble making payroll for my staffing business. What options do I have for solving my cash flow problems? Should I choose a payroll funding company or a factoring company? What is the difference? … Perplexed in Palos Verdes
Dear Perplexed in Palos Verdes:
You are not alone in your troubles! Payroll is the single largest expenditure for any staffing business and tight cash flow can put making payroll in serious jeopardy. There are a few different options out there that help alleviate cash flow problems. I reached out to Bo Kelly of J D Factors to get his ideas on this and to help us understand the main differences between “Factoring” companies and “Payroll Funding” companies. Bo explained these differences and offered suggestions to solve your cash flow problem.
Bo explained that Payroll Funding companies are more of an all-or-nothing approach which requires a contract and a loan based on the amount of your payroll. These companies make you a loan which is based on your business credibility and how long you have been in business. Some of these companies will also manage your back office including insurance and other administrative duties.
He compared this with Factoring companies which offer flexible solutions and allow you to factor as much or as little as you want with no minimum requirements or hidden fees. If you use factoring, the Factor purchases your invoice and provides you with an advance of up to 95% of the invoice value and then collects directly from your customer in 30, 60, or 90 days, depending on the terms. A good factoring company will allow you to not only select which customers you want to factor, but also what specific invoices you would like to sell to the Factors. As your business grows, the Factor can buy more invoices from you and help you not only make payroll or cover other expenses and help in the overall growth of your business. With factoring, you get the exact boost in cash flow you need without the restrictions of traditional payroll funding companies.
We enjoyed speaking to Bo about this issue which is so critical to the success of staffing firms and suggest you reach out to J D Factors at www.jdfactors.com if you would like more information on how they can help you!
Making payroll does not have to be such a headache. Act now to improve your financial position and relieve your stress!