Payroll factoring terminology: Important words to know

Payroll factoring is a relatively simple process. However, you may run into some terms that leave you scratching your head.

 

We’ve defined the most commonly used words and phrases to take you from payroll factoring zero to hero and help you decide on the best option for your staffing firm.

 

  • Accounts receivable – Money customers owe your staffing firm in exchange for goods or services

 

  • Advance rate – How much of your invoice’s total your factor gives you up front

 

  • Debtor – Your customer

 

  • Due factor – The amount owed to the factor

 

  • Due client – The amount owed to you after the invoice is paid in full, minus any fees. Also called reserve release.

 

  • Full service – Payroll factoring in conjunction with administrative functions such as filing payroll taxes, sending invoices and collections

 

  • Money only – Payroll funding without administrative support

 

  • Nonrecourse – The factor assumes the risk of bad debt and is out the money it is unable to collect

 

  • Payroll factoring – A type of staffing agency finance in which your staffing firm sells its accounts receivable invoices for a fee to the factor and gains cash up front to pay your employees and vendors. Also known as invoice factoring and accounts receivable factoring.

 

  • Recourse – You, the staffing firm, assume the risk and losses for unpaid invoices. You must buy back invoices that customers don’t pay within a fixed amount of time.