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What are the Best Tips for Payroll Factoring?

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  • Written By: D. Nelson
  • Edited By: M. C. Hughes
  • Last Modified Date: 02 November 2016
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Factoring occurs when one business sells its invoices or accounts receivable to another business for a lowered or discounted price. Accounts receivable refers to the money owed to a business for services provided. When this financial transaction occurs between staffing companies and a third party, it is known as payroll 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 funding service that provides a number of important functions, such as cash flow factoring, tax preparation, and workers compensation funding.

Staffing agencies are companies that provide their employees with paid work in companies that are clients of the staffing agencies. The employees of staffing agencies are often known as temporary workers. Because the staffing agency is not paid for placement of their 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 include cash flow funding. This service is provided to staffing agencies that need to pay employees before invoices or accounts receivable are collected. A payroll factoring service advances the necessary funding for payroll to the staffing agency in return for the accounts receivable.

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Many payroll factoring services perform tax preparation services. In locations where a percentage of earnings must be paid to a government agency, the factoring service composes and distributes necessary tax forms and other paper work to the employees of the staffing agency. 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 when workers compensation is a concern, insurance for compensation is another service provided by many payroll factoring services. The insurance is meant to financially assist an employer legally bound to pay funds to a worker who is unable to earn due to a work-related injury.

Many staffing agencies expect payroll funding services to provide processing for payroll. Processing refers to the method by which the employees of the agency are actually paid. Some common methods used by factoring services are payroll cards, which are similar to debit cards, and direct deposit, which places employees' earnings directly into their respective bank accounts.

Good payroll factoring may also include funding for staffing agencies that are in the start up stage. New staffing agencies often find it difficult to receive necessary loans from banks and other major lenders because they have no assets to offer as loan collateral. Good factoring often offers cash flow prior to the development of a staffing agency.

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