Questions to ask before committing to payroll factoring

Payroll factoring, in which staffing firms sell their accounts receivable invoices to a factor to gain cash up front to pay their employees, vendors and bills, is a popular form of staffing finance. However, it is not right for everyone.


Ask yourself these three questions to determine if payroll factoring is right for your business.


  • Do I have a cash flow gap? Many staffing firms pay their temporary employees and vendors weekly but don’t receive client payment for 30 to 90 days, creating a cash flow gap. If this gap affects your ability to pay your bills, fund your payroll or expand your business, and if you’re dipping into your personal assets, making late payments or paying interest on loans, credit cards or lines of credit, payroll factoring may be right for you. As a bonus, payroll factoring provides you with money you can use to pay your vendors earlier, taking advantage of potential discounts and saving you additional money.


  • Do I need help with administrative tasks? Payroll factors often offer full-service options in addition to basic payroll factoring. This means the factor will file and pay your company’s payroll taxes, invoice your customers, pay your employees and handle collections. This allows you to focus on your business and save money on wages, taxes and benefits you would provide to someone performing an administrative function in house.


  • Do I worry about customer creditworthiness? If you’ve ever lost a customer because it filed for bankruptcy or failed to pay for your services, you know the importance of evaluating customer credit. Many factors monitor the creditworthiness of your customers and prospects, alerting you to potential payment problems and risks. TemPay, for example, monitors customer creditworthiness 24/7 at no extra charge through its Dun & Bradstreet database and suggests alternative payment options for risky customers.


If you answered yes to one or more of these questions, payroll factoring may be for you. Contact TemPay at (866) 683-6729 to see how we can help.