The most important thing to know is that it is illegal not to pay your employees their salary. Doing so can cause your employer severe problems with the IRS and the Department of Labor for not complying with the Fair Labor Standards Act, so if you don’t have money to pay your employees’ wages and overtime, it can lead to lawsuits, federal and state tax liabilities, and severe penalties and fines that can reach the equivalent of 50 percent of the total wages owed that year. No, that doesn’t exempt you from paying your workers. These debts will also remain with you for as long as it takes you to pay them in full.
If, as your business numbers run, it becomes clear that you will not be able to pay your payroll, you must make a quick and decisive decision.
In this situation, you can take several paths. There is honesty with your employees about the case and appeal to their understanding, but this will contaminate their relationship with you, and you will realize how many of them depend on the certainty of their paycheck to survive. You could also talk to your higher-paid employees and convince them to receive less money and try to distribute the funds you have among all the workers, but it can become quite a complicated situation. One more option to get funds quickly is to contact your customers with outstanding bills and ask them if they would be willing to send you funds immediately in exchange for a reasonably large discount on the accounts they have now. Still, it is not sure that they will agree to do so or that the amount collected will cover your payroll.
This is why the vast majority of entrepreneurs who have faced this problem opt for payroll funding options closely related to factoring. This option allows you to have immediate economic liquidity to pay your payroll and is much simpler and faster than applying for a bank loan or applying for a line of credit with a company, leaving you at the mercy of their interest rates in the face of the urgency of the situation.
Roughly speaking, you sell your unpaid customer invoices to a factoring company in exchange for an advance of 80 to 90% of their total value, with the understanding that the factoring company will review the viability of the accounts receivable and the solvency of its customers to decide which invoices it will accept and determine the amount it will give you. They will take care of the collection tasks with their clients, who will have to pay their debt to the factoring company who will retain their fee and give them the rest.
The good idea is to look for several payroll financing options before you find yourself in that situation. Once you have the problem, the urgency to solve it can lead you to make hasty decisions that seem calmly may not be the best.
This is a bustling road among entrepreneurs of all sizes, and to find the best option, we suggest you look at the list of best payroll funding companies online.