Imagine you’re a small business owner who offers flexible payment options to foster healthy relationships with customers and recently got a contract that will cost a large percentage of your cash flow. At the same time, it’s almost the end of the month when you need to pay your employee, and you’re wondering how to navigate this dilemma.
This situation underscores the importance of effective money management tools for businesses. In this article, we will explore payroll financing, an alternative funding option that provides businesses with the necessary funding to facilitate employee payments. To learn more about this financing option and how to get started, read this article till the end.
What does Payroll Financing mean?
Payroll financing is an alternative funding option that helps businesses bridge financial gaps by providing the funding they need to pay their employees’ salaries. Payroll management is every business’s most significant and recurring expense because employees need to be paid accurately and on time.
When employees’ salaries do not come on time, they lose trust in their employees, affecting their productivity and charging them to jump at the next job. Why delay salary payments and lose talents you’ve managed to build over the years due to the unavailability of cash when you can get a low-cost funding alternative and pay back when you have it?
Why do small business owners need payroll financing?
Everyone runs out of cash at some point, and this is no exception for small businesses whose operation is primarily predicated on cash flow for scaling. Here are some reasons why you might want to consider payroll financing;
1. Cash flow constraints
As a business owner, you need all the funds you can get, especially when you’re big on scaling your business. So, while having many requests to fulfill is a good sign, it becomes a problem when you don’t have enough capital to complete them.
According to the 2019 QuickBooks State of Small Business Cash Flow survey, 61% of small business owners regularly need help with cash flow issues, resulting in 32% of small business owners needing help paying vendors, loans, themselves, or employees.
Therefore, payroll financing, along with effective money management tools, is a great way to help businesses circumvent cash flow problems and provide the funding they need to cover wage financing.
2. Need short-term funding to bridge financial gaps
From the first point we highlighted, business owners concerned about scaling divert most of their funds investing in large volumes of inventory, and there might be situations where customers might be slow to pay. So, while you have enough income to cover payroll, you’re limited in the amount in your account.
Instead of making employees suffer or rushing customers to pay, payroll financing would be a short-term solution to help businesses pay employees and repay once outstanding receivables get paid.
3. Common funding options are unavailable
If you’re operating a small business in Africa, you may be familiar with how difficult accessing loans can be due to several reasons, including a lack of credit history and limited cash flow. Therefore, payroll financing is an available solution to your funding needs.
What are the benefits of payroll financing?
Some of the many benefits payroll financing offers small businesses include:
1. Motivated employees
When employees are paid accurately and on time, they have a better attitude to work since they have enough money to cover their expenses. So, instead of delaying employees’ payments due to slow receivables, you can use payroll financing for small businesses to serve as a shield.
2. Financial safety net
Payroll Financing serves as a safety net for businesses in that since the major expense of payroll gets settled, business owners can concentrate on or pursue scaling activities. That way, they can focus on taking on more clients, investing in inventories, and not losing their employees due to limited cash flow.
3. Flexible financing alternative
While many small business owners typically opt for a bank loan to settle most of their expenses, including payroll, payroll financing is a better alternative. Not only would banks be hesitant because small businesses are limited in cash flow, but it is also not advisable to take out a loan for every of your business expenses. Therefore, wage financing is more accessible than the technicalities peculiar to bank loans, and you can receive funding faster.
4. Cost-effective
While business loans should ideally help small businesses grow, the current lending climate suggests otherwise. Banks are hesitant to give out loans, and business owners must resort to predatory loans with outrageous interest rates to cover pressing needs. With payroll financing, businesses can enjoy flexible repayment options and a lower interest rate.
Getting started
Now that you know about payroll financing and its benefits, it’s time to show you how to get started. All you need to do is locate a payroll financing company in Nigeria, and with Earnipay, you can access payroll financing at a flat rate of 3% per month. So head over to our website to explore our payroll financing offering today!
If you want more funding options for small businesses, check out our resources on invoice financing and purchase order financing till we meet again.
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