8. October 2012 10:03
Payroll funding can be one of the biggest financial obligations that your business faces. Depending on your size and your industry, payroll financing may be one of your biggest expenses alongside materials. But how do you cover it? And what can you do if your staff frequently changes? The answer may be a line of credit. There are three major types that offer the flexible kind of funding that works best for payroll.
Accounts Receivable Financing
A/R financing, also known as a ledgered line of credit, is a flexible option that works for a wide variety of businesses. Every invoice you issue is recorded and funding is issued based on that. This structure means that it's a highly adaptable form of credit, but it also means that it can exactly match your current needs. As you issue more invoices, you're going to need to spend more to finance them – and accounts receivable financing provides the funds you need.
Factoring offers flexible financing that functions very similarly to a line of credit but is not technically considered one. Under an invoice factoring agreement Crestmark structures your funding facility based on accounts receivable/invoices. The invoices are purchased at a discount to provide immediate availability of funds to your company.
Asset Based Lending
This form of line of credit is secured based on inventory, invoices, or a combination of the two. The amount available through a line of credit varies according to how much inventory is owned or how many invoices are issued. The main difference between asset-based lending and accounts receivable financing is how much funding is issued. With ABL, assets (including invoices) are reported in batches, whereas accounts receivable financing will involve submitting each invoice individually.