Trying to keep on top of small business payroll is a common struggle. A survey by Intuit showed 32 percent of small business owners have trouble covering expenses, and this can lead to some serious consequences. Business owners failing to pay their employees may be subject to fees and penalties, or even lose their licenses.
It doesn’t have to be this way! With proper planning, you can conquer your payroll process and get paychecks out on time, every time. And when unforeseen circumstances put a dent in cash flow, you have plenty of financing options to cover payroll expenses.
Planning is an essential starting point for every major business activity, and payroll is no exception. Start with the basics to establish a successful payroll routine:
Put everything in a calendar or on a timeline that’s easy to update whenever necessary and communicates the payroll schedule clearly to your accounting and HR departments. Perform audits of the process on a regular basis to identify problems, make corrections and ensure continued on-time paychecks.
A solid plan should minimize payroll issues, but if you find yourself short on cash, one of these three loan types can help you stay current with wages.
Gaps between issuing an invoice and receiving a customer payment create cash flow delays, which leaves you with less than you need to cover payroll. With accounts receivable financing, also called invoice factoring, you get a portion of unpaid invoices upfront from a lender in exchange for a fee.
How does it work? The lender “buys” your invoices at a discount and takes over the responsibility of collecting from your customers. You have the option of selling just a few invoices or all your receivables to cover payroll expenses. Once the customer pays, the lender gives you the remainder of the money, minus any additional fees or interest.
It’s generally easier to qualify for accounts receivable financing compared to other employee payroll loans, and it doesn’t result in long-term debt for your business. Keep in mind, though, that you will lose a portion of each invoice to fees, which could affect overall cash flow.
When your receivables aren’t enough to handle payroll responsibilities, consider a working capital loan.
Depending on your unique needs, terms can range from a few months to a few years, with alternative lenders delivering money to qualifying businesses in just a few days. Loans are paid back in daily or weekly installments until the lender has collected the full amount plus interest.
Business owners who borrow money for payroll this way generally need to cover longer periods of time, such as an expected drop in cash flow during an annual slow season. Flexible terms and rates may be available if you have good business credit and a strong financial standing.
A line of credit provides a ready source of funding for any kind of business expense and comes in handy in the event of an emergency. It can also be used to invest in unexpected business opportunities, keeping the rest of your cash free for regular expenses like payroll.
Since lines of credit are “revolving,” you don’t have to apply for funding repeatedly. Instead, a lender grants you a credit limit based on your qualifications, and you draw on the line whenever you need to supplement cash flow. You can draw as much as you like up to the credit limit and pay back the amount you borrow the same way you would with a regular loan. Once you pay back what you borrowed, there are no more fees until you draw on the credit line again.
This is a particularly useful option if you need some extra cash for expenses here and there, but can’t get a high enough credit limit with a regular credit card. This flexible loan isn’t only for payroll use, though; it can be used for anything related to your business and growth.
Implementing a sustainable payroll plan is crucial for the health and longevity of your business. Outsourcing to a service provider like National Business Capital and Services takes the burden of payroll off your shoulders, saves you time and reduces the cost of processing. Time tracking software improves accuracy and minimizes potentially costly errors, and a direct deposit option cuts down on the number of paper checks you need to issue. Additional help with taxes provides a bit of relief when it’s time to prepare paperwork for the IRS.
At National, our financing advisors work with you to find a loan option that caters to your immediate needs. You’ll choose from several financing options with lower rates, longer terms and larger amounts, which makes reaching payroll even easier, especially in a pinch. Get in touch with a representative at National to start the conversation today!
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