Have you ever faced the real chance that you are not going to make payroll? This is a dilemma that many businesses face. Cash flows get tight and payroll is coming up quickly. You have a choice. Pay your employees or have the lights turned off. For staffing agencies, this situation is all too frequent.
One of the biggest challenges of running a staffing agency is the time between when the employee does the work and the client actually pays for that work. That time can range anywhere from 30 to 60 days. In the meantime, you have to pay the employee for the time worked. And pay all the rest of your bills. How can you pay your staffing employees on time, without the worry you are experiencing now?
Meeting Payroll is Not Optional
Don't make the mistake of thinking that payroll is like any other bill. With utility bills, you can wait a few days and then pay a late fee. That doesn't work when it comes to payroll.
You have a legal obligation to pay your employees the amount they are due, when they are due. That means if they are to be paid every other week on Fridays, you have to pay them every other week on Fridays. No exceptions.
What can employees do if you fail to pay them? They have the legal right to file a wage claim against your company with your state's Department of Labor. These people don't play around when it comes to employee claims. You will have to pay the amount due, with interest. And you may face fines on top of that. Plus, you are on the department's radar and will find yourself under constant scrutiny.
On top of the problems with the state's Labor department, you may also face issues with the IRS, if you are not paying your payroll taxes. The state's Revenue Department will also have an interest in this.
Employees who don't get paid are not going to be happy. If you are lucky, they won't quit instantly. At the very least, they are going to think the business is in deep trouble. So, if they don't quit immediately, they are going to start looking for a job.
The end result is that you will lose your best employees. This will leave your clients unhappy, which will impact your relationship with them. And that will have a long lasting impact on your staffing agency and its reputation.
How Can You Meet Payroll When Money is Tight
Okay. Now you know why meeting payroll is not optional. But, what can you do when money is extremely tight and payroll is looming? The answer is factoring.
Factoring is a good option for raising the money you need to meet payroll. You likely have plenty of cash trapped in your unpaid invoices. If those invoices are current, and from creditworthy clients, you can work with a factor to free up a portion of that cash. You turn the invoices over to the factor, who assesses and verifies them. If everything checks out, the factor will forward up to 90 percent of the value of those invoices.
Before you can factor, you will need to go through an application process. This can take a few days, but is a one-time process. Once you are established with the factor, you can get access to the funds within 48 hours of factoring the invoices.
You can use that cash in any way you need or want. You can definitely use it to meet payroll. You can also use it to pay bills, do additional advertising, or any thing else your staffing agency needs.
The Bottom Line
If you are having ongoing issues with cash flow and meeting payroll, you need to talk with a factoring company about your options. You may find that you can free up the cash you need with the invoices on your open ledger. It relieves the worry of meeting payroll without taking on additional debt or getting into trouble with your employees, clients, and the government.