Recruitment Insights

5 common misconceptions about Payroll Finance

November 14, 2022
5 common misconceptions about Payroll Finance

Payroll finance is an increasingly popular way to close cash flow gaps and meet payroll deadlines. However, there are some misconceptions about payroll finance, causing businesses that would most benefit to avoid adopting it at all.

So, let’s bust some of the most common myths we have come across and shed some light on how payroll finance enables business growth.

Payroll funding is a solution for struggling businesses

Payroll finance is not a last-resort solution for struggling businesses. It is simply a solution to support enterprises with unique cash flow challenges to ensure they can run their business without cash constraints. It is a solution gaining momentum in Australia, and any company that wants working capital to support its growth can use it.

For example, payroll finance addresses problems faced by recruitment businesses that we see daily. Recruiting companies face a unique challenge: they need to provide talent to their clients and pay those people before receiving the entire invoice payment for their services. Such a situation creates a cash flow gap that payroll finance can fill. But, this does not mean that these recruitment companies are struggling; they simply need the funds to keep their business running until their client pays.

Customers will lose their trust in your organisation

Your customers are the lifeblood of your business, and naturally, you want to be very careful in making decisions that would jeopardise their trust in you. If you carry the perception that payroll finance is for struggling businesses, then you might fear that your customers will think the same thing if they discover you leverage one of these solutions.

If anything, payroll finance can help you improve your relationship with your customers. You might spend a lot of time chasing your clients for invoice payments, which is frustrating and can make your customers uncomfortable as they likely do not have all the cash to pay your invoice yet. Instead of continuing with this process, you can leverage payroll financing to cover your costs without putting extra stress on your clients.

You might still have reservations about disclosing how you take care of payroll management. If so, you can leverage a payroll finance solution confidentially, which you can request from your provider.

The payroll finance company takes control

When you engage with a payroll finance provider, they do not take control of your business. Payroll finance simply means using your company’s earnings to finance current operations. There’s no need to give up any equity or control in your business when you use these solutions.

One reason for this misconception is that some business owners confuse payroll finance with other types of financing, such as factoring or loans. They think that because they’re using their company’s earnings to finance its current operations, they must give up some control. Payroll finance is a distinct type that does not require you to give up any equity or control in your business.

You can set the level of involvement when engaging a payroll funding company. They will tailor their facilities to your needs and integrate their solutions with your payroll and timesheet systems to give you greater control.

Obtaining payroll finance requires lock-in contracts and assets

You may have heard that you need to sign a lock-in contract and/or put up assets as collateral to obtain payroll finance. You might have this misconception because you have taken out or are familiar with traditional payroll loan that require a contract, assets as security and proof of credit history.

For payroll finance, this myth is simply not true. You can obtain payroll finance without signing a contract or putting up any hard assets. The only collateral you put up when requesting payroll finance is essentially the invoices issued to your clients.

Flexibility is paramount when choosing a payroll funding solution, so minimum terms and lock-in contracts may not suit. Although you may be able to secure a better price and cost certainty if you are prepared to have a longer term view.

It will become a more costly solution over time

One of the biggest misconceptions about payroll finance is that it becomes more expensive than other forms of financing over time.

Payroll finance does not incur more costs over time. It provides the funds already owed to you to facilitate growth, which outweighs any surface-level costs. The simple pricing model allows you to grow today and increase your profit margins tomorrow. Having access to uncapped levels of funding that will ensure you can grow your business without being hamstrung by cash constraints, means you will grow your gross margin by much more than the cost of accessing the funding needed to do so.

When you take out cash from a payroll finance provider, you receive up to 100% of the funds you need, and the payroll finance provider collects the payment from your client when they pay. It is a more direct way to receive funds and ensures you will always be able to meet payroll obligations on time, every time.

APositive is your partner in payroll finance

If you are a business that needs to pay staff before receiving payment for work completed, then payroll finance could be the boost that your business needs to grow and succeed. APositive has the experience to help you take on this challenge.

Our Payroll Funding solution provides you access to the money stuck in unpaid invoices. We also deliver a tech-integrated back-office solution with outsourced payroll options to remove the administrative burdens of managing it yourself.

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