Factoring is when a business sells its invoices or receivables to another business for a discounted price. Payroll factoring services should include cash flow financing, tax preparation, workers’ compensation financing, and processing for staff. They can also provide financing for start-up staffing agencies.
Factoring occurs when a business sells its invoices or receivables to another business for a reduced or discounted price. Receivables refer to money owed to a business for services it provides. When this financial transaction occurs between the staffing company and a third party, it is known as factoring: the third party makes a payment to the staffing company in an amount based on the value of future payments owed to the staffing company. The best tips for payroll factoring involve finding a factoring and financing service that provides a number of important functions, such as factoring for cash flows, tax preparation, and workers’ compensation financing.
Staffing agencies are companies that provide their employees with paid work in companies that are clients of staffing agencies. Staffing agency employees are often known as temporary workers. Because the staffing agency does not get paid for placing its employees until the employees receive payment, the staffing agencies have accounts receivable that are sold to payroll factoring companies.
It is important that payroll factoring includes cash flow financing. This service is provided to staffing agencies who need to pay employees before invoices or credits are collected. A payroll factoring service advances the necessary payroll funds to the personnel agency in exchange for receivables.
Many payroll factoring services perform tax preparation services. In places where a percentage of earnings must be paid to a government agency, the factoring service composes and distributes tax forms and other necessary paper documents to employment agency employees. The service may also file these forms with the appropriate government agency.
Workers’ compensation is money paid to employees who are injured on the job. In situations where workers’ compensation is a concern, compensation insurance is another service provided by many payroll factoring services. The insurance is intended to help financially a legally obligated employer to pay out funds to a worker who is unable to earn due to an on-the-job injury.
Many staffing agencies expect payroll finance services to provide processing for staff. Processing refers to how agency employees are actually paid. Some common methods used by factoring services are payroll, which is similar to debit cards, and direct deposit, which places employee earnings directly into each other’s bank accounts.
Good factoring can also include financing for start-up staffing agencies. New staffing agencies often find it difficult to get the necessary loans from banks and other major lenders because they have no assets to offer as loan collateral. Good factoring often offers cash flow before a staffing agency is developed.
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