If you are a growing business, it is more likely than not that cash flow gaps have held you back at some point along your journey. Companies that issue invoices and offer credit terms from 30, 60 or even up to ninety days have to deal with the timing difference between making a sale and getting paid. When managed well, cash flow gaps may not cause an issue. However, if customers start paying later or your working capital requirements increase, problems can quickly arise. Timely cash flow is needed to pay staff, manage existing sales and supplies as well as take advantage of growth opportunities when they arise.
This problem impacts many industries, including recruitment. Recruiters who manage contractors (labour hire) have the responsibility to pay them on time. This almost always falls before their client pays them for the work of the contractor. As a middle-man, recruitment companies and other third-party payroll firms often make use of a payroll funding facility to bridge this cash flow gap effectively.
What is Payroll Funding?
Payroll funding is a practical and efficient alternative to more traditional financing solutions. Instead of taking out a loan from a bank or selling your invoices to an invoice factoring company, recruiters can instead draw funds against their outstanding invoices soon after they are issued. Payroll funding acts as a ‘revolving line of credit’, meaning that your business can access approved funds whenever necessary without the need to provide an external property or commercial asset as security.
“Payroll funding is growing in popularity due to its efficiency and simplicity.”
The funding you have access to grows as your business does. When your sales (and the balance of your unpaid invoices) increases, so does your line of credit. Payroll funding is a flexible funding solution that gives you access to cash only when needed. You will only pay interest on the amount you have actually drawn down on – there are no minimum use requirements. Payroll funding ensures that your workforce and bills are paid on time even if your clients have not yet paid their invoices. Your facility is replenished (minus a small fee to compensate for early funding) when your customers make their payments. This solution is growing in popularity due to its efficiency and simplicity – there are no ongoing fees, hidden charges or tricky lock-in clauses, just pay for what you use.
Payroll Funding is Very Different to Invoice Factoring
Payroll funding and invoice factoring both provide businesses with cash using their accounts receivable ledger as collateral. However, other than this, they are quite different. Invoice factoring is a solution that requires you to give the factoring provider control over the collections process with your customers. Your customers will be aware of what is going on, knowing that they now will be speaking to the factoring company when invoices are overdue etc. This open disclosure is what turns many businesses off factoring as a financing solution, as they want to stay in control of the relationship with their customers.
Payroll funding is rather a specialist term for invoice discounting. Invoice discounting advances you the vast majority of an outstanding invoice’s value, without taking over the collection process and the relationship with your customers. It offers a convenient revolving line of credit by integrating directly with your cloud accounting software. This creates an efficient, mostly automated system to improve your recruitment agency’s cash flow – all you have to do is draw down on any available funds when required. There is disclosed and undisclosed invoice discounting, which is based on your business’ credit rating as well as your clients.
What You Need to Get Started with Payroll Funding
Payroll funding providers like OptiPay (OptiPay) will pay you up to 90% of your verified outstanding invoice value upfront. When your customer pays and the funds are received by your financier, they’ll remit the remaining 10% minus a small fee to compensate for early funding. Getting access to a payroll funding facility with OptiPay is straightforward if you meet a basic set of criteria:
- Turnover more than $1.5 million a year
- Have an ABN and sufficient identification documents
- Issue invoices to your customers, which are other businesses (not individuals)
- Have been operating for longer than a year
- Keep up-to-date records and use cloud accounting software (eg: Xero; MYOB etc)
OptiPay also allows you to protect yourself from customers that don’t pay. OptiPay includes a form of trade credit insurance as an additional layer of protection. If your customer/s default on their payments as a result of them going into insolvency then OptiPaySecure™ protects you by covering up to 90% of the invoice value issued to your debtor and funded as well as the legal costs to chase your client.
Don’t let a cash flow gap hold your recruitment agency back. Use your unpaid invoices to unlock tomorrow’s cash today with OptiPay.