Why You Need to Pay Your Employees on Time

There are many uses for accounts receivable factoring. The most crucial of them all is probably meeting payroll. Of all the expenses that any small business owner needs to take care of, it is payroll. Your employees are the lifeblood of your company, and not being able to pay them on time is a nightmare waiting to happen.

What Happens When You Don’t Meet Payroll?

The first thing that happens is that everyone in the company now knows that your business is failing. It’s not just a temporary setback. Your business is seen as a ship that’s sinking… rapidly. And that means many of your employees will jump ship and seek new employment elsewhere.

This is a death knell for your business, because even if you resume paying them the next time with back pay, they now know that you let it happen. And that means there a very good chance that it will happen again because there’s already a precedent.

Then there are legal consequences. Every unpaid employee can file a state wage claim against you. The Department of Labor may impose penalties against you for violating labor laws regarding fair payment of employees. You may also be falling behind on your quarterly payroll taxes, and now you have the IRS on your tail with their own fines and penalties.

Or you can close up shop and declare bankruptcy.

How Do You Avert This Disaster?

The first thing is to check if you have the money in your accounts receivable. If you do and you predict that you won’t be able to meet payroll in a month, then you can still be saved from a potential disaster. That’s because you can still use accounts receivable factoring.

In factoring, you get your money from your invoices (around 80% of the value), except you won’t have to wait for the 30 or 60 days that your customer has to pay in full. You can contact a factor and apply for factoring, and then the factoring line can then be set up. That should take only a week or two, and then you can get your money from your accounts receivables. And other incoming accounts receivable can be turned to cash in a day or two.

Other Methods of Meeting Payroll

There are other things you can do to make sure your employees are paid on time. Go on Facebook and borrow from your friends and family. Use your credit card. Sell things you don’t need. Don’t even think about paying yourself a salary. You can even sell surplus company equipment.

As you can see, you need to do everything in your power to pay your employees. And once you do, you may have to consider cutting down on manpower.

What you don’t do for payroll is to go to a bank get a loan. Even if by some miracle you meet their business loan qualifications, it will simply take too long for you to get the financing you need and by that time it will already be too late.