How does a small or medium sized business with limited working capital cover wages and payroll? And how does it manage when payroll runs to a fixed schedule while customer payments do not?
For service and labour-heavy industries this is particularly challenging, because you can find yourself coming up short on payday even when you are profitable and fully booked.
Invoice Finance helps you close this cash flow gap. You have earned the cash and issued invoices to your customers, and you are simply waiting on the accounts receivable process to play out. With an Invoice Finance facility you can draw on the working capital held in your issued and outstanding invoices. ScotPac Invoice Finance helps businesses manage cash flow, pay wages, fund growth, and more, so you have the working capital on hand to meet payroll and associated costs without waiting out a payment term of 30, 60 or 90 days.
Explore the benefits of Invoice Finance.
Why Meeting Payroll Can Be Tight Even for Successful Businesses
Payroll is one of the few operating costs in your business that never pauses and does not move.
Wages and their associated obligations run to a fixed schedule that you set and cannot easily shift. Your receivables do not.
The timing of your customer payments is not set by a fixed and consistent schedule. It depends on the terms you agreed, and it can be affected by your customer’s approval workflow or their own cash flow position. All of that sits on top of payment terms that commonly start at 30 days.
In short, meeting payroll can be tight for successful and profitable businesses. It is not a shortfall problem, it is a timing problem. You have earned the money by delivering the goods or services, and now you are waiting for customer payments.
How to Cover Wages When Your Customers’ Invoices Are Still Unpaid
Meeting payroll is essential to the continued running of your business. There are short-term strategies for reducing the timing mismatch, though they are unlikely to fix the underlying problem.
- Chase payment status early and often.
- Align your invoicing timing with the completion of work.
- Stagger contractors’ start dates.
- Review payment terms on new contracts.
These tactics help reduce the gap between invoices issued and cash coming in, but they do not close it.
Invoice Finance is built to do that.
How Does Invoice Finance Ensure Cash Comes In When Payroll Goes Out?
Because your payroll is fixed and regular, you need a funding solution that gives you controllable access to working capital.
Invoice Finance is built for this. Instead of waiting out your customers’ payment terms, you reduce the timing gap by drawing funds against the invoices you have already issued, when you need to. You have complete control over how many invoices you submit for financing and when to submit them.
Why does Invoice Finance work so well?
Funding grows with your invoicing. Invoice Finance provides funding that grows with your business. As the value of your issued invoices rises, your access to funding grows alongside it.
Advance access on your schedule. Once your facility is approved, funds can be available in as little as 24 hours, giving you fast access to the working capital held in an invoice you have submitted. The balance follows once your customer pays. Unlike a traditional bank loan, Invoice Finance does not involve fixed monthly repayments.
Built for growing businesses. ScotPac Invoice Finance helps businesses manage cash flow, pay wages and fund growth. It is a working capital facility, used to align timing rather than to plug a hole.
Complementary funding solution. If your business also imports stock or materials, or sources them domestically, a Trade Finance facility sits alongside your Invoice Finance solution. ScotPac’s Trade Finance facility is always operated in conjunction with an Invoice Finance facility, so you can fund the supplier payment side of your operation as well, from beginning to end.
Which Industries Benefit from Invoice Finance the Most?
Invoice Finance is a funding solution designed for business-to-business industries. Your company needs to sell goods or services to other businesses on standard trade credit terms.
Service and labour-heavy businesses feel the timing gap between work delivered and payment received more often than businesses selling physical stock, because their biggest expense, labour, falls due as payroll before customers settle their accounts.
Industries that particularly benefit from Invoice Finance include:
- Labour hire
- Recruitment companies
- Commercial cleaning
- Facilities services
- IT contracting
- Consulting firms
- Trades
Overdraft or Invoice Finance: Which Covers Payroll More Reliably?
Invoice Finance is not the only option. An overdraft facility also provides access to working capital and gives your business control over when it is drawn. The question for payroll specifically is whether the facility keeps pace as your wage bill grows with the work you win.
The table below compares the two on that basis. For a general comparison of the two facilities, see Invoice Finance vs. Overdraft: Which Is Better for Your Business?.
For covering payroll
Business Overdraft
Invoice Finance
Can you align access with payday?
Yes, as long as you are within your overdraft limit.
Yes, and access is linked to the invoices you have already issued.
Does access increase as you win more work?
No, your overdraft limit is fixed until it is reassessed.
Yes. As you invoice customers more, your available funding tracks accordingly.
Do you need property security?
Traditional bank loans and overdraft facilities typically require real estate or assets as collateral.
No need for property or other assets as security. Invoice Finance uses unpaid invoices as collateral.
What is this facility best suited for?
Covering short, occasional gaps in cash flow.
Ongoing, recurring timing gaps such as payroll.
Speak to a ScotPac lending specialist today about your payroll cycle and your outstanding invoices, and we can tailor an Invoice Finance facility to your needs and situation.
