When it comes to payroll, it is essential to ensure you have a sustainable cash flow to cover the costs of your staff. If you do not have the cash to cover payroll, it can be difficult to retain staff, and you might struggle to secure new business without the right people on hand.
I have spoken with many business leaders of start-ups, recruitment agencies and contracting companies about their payroll challenges while waiting on client payments.
Rather than exist in a cycle of negative cash flow and chasing clients on invoice payments, you can take the following six measures to become cash flow positive.
Forecast to see what you need
Forecasting is an excellent place to start if you envision funding your payroll may be tight. It illuminates where you may fall short in meeting payroll obligations, and why, by giving you a clear idea of your incoming and outgoing cash so you can identify potential shortfalls.
I recommend forecasting by estimating your weekly payroll costs and multiplying this by how long it takes customers to pay their invoices. Once you have done this, you can calculate how much you need to cover payroll expenses. To get the most accuracy, you should also include projected sales levels and other customer payments.
For example, if you are a recruiting business, you might start calculating your forecast with income from your permanent placements. You might have enough money to cover payroll with your permanent placements, but growing temporary placements may require a funding solution.
Compare payroll funding and invoice finance
Once you have completed your cash flow calculations and know how much funding you need, you can begin considering the type of funding best suited to your needs. Invoice finance and payroll funding are two terms often conflated, but they cover different funding methods. Knowing the difference will enable you to make the right choices and sustain cash flow in your business.
Invoice finance is a standalone product where you receive the funding you need based on outstanding invoices for services you have provided. It is best leveraged if you have general business expenses to pay but do not necessarily need a consistent solution.
Payroll funding takes a similar approach, but a provider will integrate it into your company’s hiring processes and systems. So, you have immediate access to funding when you process payroll each cycle.
Close your cash flow gaps with payroll funding
If you are a business that hires out people and equipment or takes on contract work, payroll funding might be the best option for you. We work with many companies that cite cash shortages when it comes to paying their staff as they are still waiting for payment from the previous month’s contracts.
Yet, you cannot pause a pay run. Your staff need to pay bills, and you need to pay them. A payroll funding solution closes the gap so you can retain your team and keep your business growing.
For example, your business’ weekly payroll costs sit at $200,000, but your customers need thirty days to pay their invoices. In this case you will need to cover four weeks of payroll, amounting to $800,000 so that you can pay your staff on time and keep the business running. With payroll funding available when you need it, you can take on more contracts with the confidence that you can pay your staff, even before customers have paid you.
Integrate payroll funding with timesheet and billing
You do not need to fulfil any system requirements when setting up payroll funding, but it works best when integrated with your timesheet and billing technology.
When you choose APositive as your payroll funding provider, you do not have to do any of the work associated with integrating the solution into your existing tech stack. We can even set up a tech stack that supports the type of business you take. For example, recruiters can get a solution that specifies placement types, such as white and blue-collar, subject, Awards, etc.
Access to payroll funding becomes quick and easy when you integrate it with your existing technology. Integration with your backend platforms becomes especially useful if you are a business with short payroll processing timelines, as you can access funding for invoices immediately.
Calculate the net benefit and get a quote
We do not approach payroll funding as a one-size-fits-all solution. To achieve sustainable cash flow, you need a finance arrangement tailored to your business.
When getting a quote, it is essential to remember that payroll funding is about more than the funding costs. It is about the net benefit gained from having access to funding.
For example, you should consider how much money you will save on payroll processing and funding costs. Then, consider the business growth. If payroll funding gave you the ability to grow your sales by $100,000, then a funding option with a margin of 10% means you earn an extra $10,000. If the cost of payroll funding is 1%, then your net benefit is $9,000.
So, when receiving a quote for your business, it is best to think of payroll funding as enabling business growth rather than becoming another overhead cost.
Offer payment by instalments to your customers
When waiting on your customers to pay their invoices, the cycle often looks like this:
You issue the invoice for work delivered, but your customer may also have cash flow issues. They will not be able to pay you the full invoice until they have the money to do so. What occurs is a strained cycle where their cash flow impacts yours.
If you are a business with permanent fees and would like your invoices paid quickly, a Buy Now Pay Later option allows you to offer payment in instalments to your clients. You can have the pending invoice paid to you in full while your customer pays off the invoice.
Payment instalment options improve your cash flow which can help reduce the gap in funding available to meet payroll.
How APositive supports sustainable cash flow
Our Payroll Funding solution provides you with access to the money stuck in unpaid invoices. We also deliver a tech-integrated back-office solution with outsourced payroll options to remove the administrative burdens of managing it yourself.
