Needless to say that employees act as the most vital competitive factor with the help of which a company can deal with the competition in the market. Only motivated employees prove to be useful for the company and when it comes to motivating the employees, they rely on their paycheck. The payroll factoring is a solution that helps the businesses pay their employees on time. This article will provide all information one needs to know about payroll invoice factoring.
What is meant by payroll invoice factoring?
Payroll invoice factoring, also referred to as payroll factoring is an ultimate solution that helps generate earlier cash flow for the companies with invoices outstanding for 30 to 120 days. It is not considered a loan, but a transfer of invoice from the business to a third-party company known as a factoring company. The company can supply one with the advancement in exchange for his or her invoices with the help of payroll invoice financing. It is because of such type of financing that companies can pay their employees on time and continue running their businesses without working about losing their workforce.
Working on Payroll Invoice Factoring
Businesses interested in receiving payroll invoice financing must consider working with the factoring company. Here given is the information on how does payroll invoice factoring work:
- Research and find a factor:
First, as soon as the business has sent out its invoices due from 30 to 120 days, it should start looking for a factoring company that suits the needs of the business and sell the invoices to it.
Once the factoring company has been selected, it will check the business and also the past and present invoices that the business is factoring. After reviewing the business, an agreement is provided by the factoring company that needs to be signed by both parties.
- Signing the factoring agreement:
Once the agreement is reviewed by the lawyer and signed by both parties, the factoring process will commence. The factor provides the company with the advancement either in the form of bank wire or cheque which is usually 80%-90% of the invoice’s value. The same advancement can be used within 3 business days. Also, the factoring company will contact the clients of the particular business with information on how to send payments. So, it is better to inform the clients about the factoring agreement in advance.
- The client pays the invoice
Once the clients have paid for the invoice on time, the remaining balances are sent by the factoring company to the business. The factoring company also deducts a service fee as compensation for the invoice factoring service.
Now that businesses are responsible for the livelihood of their employees, the businesses are mandated by the law to pay the employees on time. Outstanding invoices with a net term between 15 to 90 days might create a huge gap in the cash flow of a company making it risky for paying the employees. It is payroll factoring that solves this common issue.