When does it make sense to borrow money to cover payroll?

2 MIN. READ

Ideally, payroll should represent between 20-30 percent of your business’ expenses. Balancing your expenses and cash flow requires a lot of careful planning, but there are situations where planning won’t be sufficient.

Covering payroll, payroll taxes and benefits paid to employees can become a challenge if you run into cash flow disruptions or delays. Under the Fair Labor Standards Act, you are obligated to compensate employees promptly. Pushing back payday can have disastrous consequences on a business, including crushing morale. Employees will start seeking other opportunities if you are unable to compensate them.

You can maintain confidence in your business’ leadership and morale by borrowing money to cover payroll. There are different options to consider, including using a credit line, borrowing against future sales and borrowing against accounts receivable.

Here are a few examples of situations where you should consider borrowing to cover payroll expenses.

Disaster scenarios

A new recession or economic crisis can cause your sales and revenues to come to a standstill. A news story or new policy that impacts your industry can have severe consequences on your revenues as well.

Likewise, a natural disaster can completely disrupt your business. Your client base might not be in a position to make purchases or the aftermath of the disaster might prevent your business from operating as usual.

Those are scenarios where financing payroll by borrowing means that employees will stick around and can still support their families while you focus on creating a plan to get back on your feet.

Planned and unplanned expenses

Businesses sometimes incur major expenses that weren’t planned. Here are a few examples:

  • A major piece of equipment breaks and needs to be replaced or repaired
  • There is an urgent need to upgrade equipment for safety reasons
  • You need to purchase a software upgrade to meet new compliance requirements
  • You receive a large order or see a sudden surge in sales and need to spend more on inventory
  • You need to cover costs associated with hiring specialized talent or with hiring several seasonal employees

In those scenarios, an immediate expense reduces your cash flow but results in growth. Borrowing to cover payroll helps balance your finances and frees up cash for necessary expenses.

Cash flow delays and disruptions

Losing a major client or having a client cancel a large order is going to impact your revenues. You might also encounter difficulties with collecting some accounts, whether you deal with delays or failure to collect.

Issues with accounts receivable or clients can temporarily freeze your cash flow. Borrowing will help you cover immediate expenses like payroll and give you time to bounce back and find new clients.

Covering payroll should be a priority, but there are different unexpected situations that can reduce your cash flow. If you find yourself unable to cover payroll, assess your situation and compare financing options to find one that makes sense for you.

 

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Purchase Order Financing: Funding without the Hassle

We at Yalber, are highly determined in making business financing simple and easy for our loyal customers. We are passionate to making sure our customers have a positive and streamline funding experience. We don’t only offer MCA funding,we also offer Purchase Order Financing.

What is P.O financing you ask?

It is a funding option for business owners that need cash to fill single or multiple customer orders. Cash flow problems do exist for many business owners- and Yalber is here to help.  There will be times when there is not enough money to cover expenses in a business. For an example, an owner of a kitchen appliance store may get more demand for a heavy duty oven they have…than supply. If they turn down orders- they can lose revenue, quickly.  It can also tarnish reputation and restaurateurs  may go elsewhere for their kitchen needs. To avoid this scenario, it is imperative that businesses find the capital that they need. A Purchase order financing can be a great alternative to traditional funding.

How does it work?

It involves one company paying the supplier of another company, for goods that have been ordered to fulfill a job for a customer. Many Purchase order financing services have way too many requirements to secure their funding. These requirements can also prohibit and limit capital access to new businesses. At Yalber, we put our financial expertise to work. We offer a solution without the hassle and less requirements. We are determined to making sure you never have to stop gaining revenue and your business stays afloat, always….and that is the Yalber way.

Looking for funding? Apply here.

8 Invoicing Mistakes

Invoicing sucks. It can be highly tedious with tons of numbers and something that people may leave to the last minute. But it is absolutely crucial, if you want your business to maintain an organized and positive cash flow.  In order to get compensated for your goods or services on time, there are some mistakes you have to avoid! Capitalize on opportunities and don’t let them slide by!

1) Procrastination

It’s not college anymore. You can’t leave things to the last minute. The best time to sent out an invoice is immediately following the completion of a sale.

2) Having unclear terms

When writing out an invoice, avoid using vague language. If you want the client to pay the invoice in a timely manner- make sure that you include a clearly state item description, prices and quantities.

3) Not itemizing services

Some clients require a detailed and itemize service breakdown. For many customers it can be a matter of procedure and helps tracking, recording and reporting expenses.

4) Poor formatting or editing

 Always make sure that your invoice looks super tidy as the button down white shirt you are wearing. Spelling errors, incorrect dollar amounts and generic formatting can make your business look unprofessional. It can also prevent you from receiving correct payments on time. Always make sure you double check and proofread your invoices- so you can catch them before they are sent out.

5) Not understanding invoice factoring

Invoice factoring is a popular option when you need funding fast. In a nutshell, it is an option that you can sell unpaid invoices to an invoice factoring company for cash–*hint* YALBER OFFERS THIS*

6) Not branding your invoices

Having a company logo on your invoice can verify it to be an established brand and differentiates you from other invoices that your client’s are receiving. You can also take advantage of this to vamp up your branding opportunity and awareness!

7) Not taking your invoice as a marketing opportunity

Invoices can be a great medium between your company and your customer- to know more about your products.  You can use the invoice as a marketing tool- this can have a positive affect and increase your revenue! When you send out an invoice, try including marketing materials such as newsletters or promotional flyers.

 

8) Sending an invoice with hidden charges

This is a massive no-no. Transparency is key to any business-to-business relationship. When sending an invoice, each charge should match the terms and expectations as agreed upon by both parties.

Bottom-line: Avoid these common mistakes businesses make when they send out invoices- as a business owner you should always strive for a streamlined transaction process. Cash flow is critical to managing day-to-day operations and is key to maintain a stable organizational structure.

 

What mistakes do you think are also important to address?

Please comment below – we would love to hear what the rest of the business community is saying!

 

Looking for funding? Apply here.

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