Payroll Funding: 8 Things You Must Know

1. What is Payroll Funding?

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Payroll Funding is a type of working capital financing specifically for the Temporary Staffing Industry. (In other industries this is more commonly known as invoice factoring.) It allows staffing companies to access up to 90-95% of their outstanding accounts receivable to make sure they always have cash in the bank to make payroll, pay taxes and other costs that go along with running a staffing business.

Payroll Funding

The great thing is the cash is there regardless of whether the staffing company’s customers pay in 7 days, 30 days or 90 days. This financing enables entrepreneurs to start and really grow a temp staffing company without limits. They now have this factoring line of credit that grows with them as they grow their business exponentially.

2. How does Payroll Funding Work?

So how does payroll funding work on a day-to -day or week-to-week basis?

Once the client is set up for funding, it is a very smooth and easy process. Generally, the staffing company will submit invoices and supporting time cards to the payroll funding company for the prior week so they can be funded for the upcoming payroll. The payroll funding company will take those invoices and timecards and make sure they match up and verify that the customer is going to pay these invoices. Then typically 90-95% of the total value of the invoices is immediately transferred to the staffing company. The remaining amount 5-10% is held in a Reserve Account awaiting payment of invoices.

The staffing company’s customer is directed to pay the invoices to the payroll funding company. When the payroll funding company receives payment from the client’s customer, the funding fee is deducted from the payment and the remaining 5-10% is available immediately to the staffing company upon request. This funding cycle will typically be a weekly or bi-weekly routine for a staffing company and their funding partner and is a smooth and easy process.

In the end, the staffing company always has access to the funds they need to meet their payroll obligations . The payroll funding company generally receives a fee somewhere between 1-3% for providing this service.

3. How to Qualify For It?

Qualifying for payroll funding is really quite straight forward. The two main things a payroll funding company wants to see when onboarding a new client is that the invoices are good and the customers have the ability to pay their bills. With a simple customer list, the payroll funding company can check with the credit bureaus to see if the customers’ credit is good and if they look likely to pay their bills. Staffing companies make great factoring candidates as they typically have signed time cards along with the invoices which prove that the work has been done. Outside of this, the payroll funding company just wants to see that you have a plan to stay in business and that you are running a valid legal business. Meritus Capital does not require any particular credit score, time in business, or volume of business to qualify!

The Basics of Payroll Funding

Great For: Staffing businesses small and large. Startups included!
Funding Amount: 10K-25 Million Dollar Lines
Advance Rate: 90-95%
Discount Rate: Starting from 0.3 - 0.59%
Years in business No requirement! (We have funded many great startups)
Qualifications: Creditworth customers and invoice B2B or B2G customers
Repayment Terms: Client pays to factor on terms. Typically 15-90 days.
Application Process Easy and Online, E-sign enabled

4. Payroll Funders Have Different Offerings

Different payroll funding companies have different offerings. Although the product is similar, there are some key points you will want to find out before engaging with a payroll funding company. Here are some of the main ones:

Fast Funding – You want to work with a payroll funding company that provides same-day or next-day funding so they can meet your working capital needs. Usually this is done by wire or ACH soon after you give them your invoices and time cards.

Advance Rate – Find out what percentage of your invoice is advanced and what percentage is held in reserve. Advance rates can range from 80% to over 95%. Think about what your staffing company needs and make sure your needs align with what is being offered.

Minimums – Some factoring companies require you to finance a certain amount or pay them a minimum amount of fees per month to be a client. Other companies have no required minimums and allow you the discretion to use the AR finance facility on an as-needed basis and save money. In some cases, a long-term contract or a specific on-going dollar volume may make sense. But make sure you have a good reason for that term such as cost-savings for making the commitment.

Full Service Funding -Some payroll funding companies offer a full service option where they will also provide full back office support. They will pay your employees, file your company’s payroll taxes, provide W-2’s to your employees, invoice and collect from your customers. This option takes the back office burden off your plate and lets you focus on filling positions.

Credit Protection – Some but not all payroll funding companies will offer credit protection by purchasing credit insurance. Credit protection, also known as non-recourse factoring, protects you if your customer goes bankrupt. If this is something you want to have, let the companies you are talking to know. You may pay a little more for this type of protection but the contrast without credit protection is that any uncollected invoices due to bankruptcy would be charged back to you.

Credit Analysis – Many factors can provide you credit checks for new customers and advise you on the likelihood of receiving timely payments from them. This information can be crucial to the livelihood of a staffing business. Make sure the payroll funding company you choose has a great deal of experience in credit analysis.

Online Reporting – Knowledge is power. Make sure that the funding company you sign up with has an online reporting system that provides 24/7-access to necessary reports and information. These can be purchase and advance reports, collections reports, reserve reports or aging reports. These help you to keep your finger on the pulse of your business.

5. What are the benefits?

  1. Access to the cash you need to make payroll each payroll period
  2. Capital to grow as fast as a business can place
  3. Years of experience in credit and collection, helping you make smart decisions
  4. Get cash without adding crippling debt
  5. 24/7 online reports that help you keep track of your billings
  6. Having a partner that is working for your success

6. Is payroll funding or factoring common for staffing companies?

Simply, Yes! There are thousands of staffing entrepreneurs across the globe that utilize payroll funding or invoice factoring to grow their business. As qualifying is principally based off of the staffing company customers’ credit quality, the ability for almost anyone to qualify is available, making this a very accessible form of financing and one of the most popular.

7. Where is payroll funding available?

The great thing about payroll funding is that you don’t have to have a company in your city or town but you can partner with any company within your country. Meritus Capital provides payroll funding for businesses across the U.S.A. and Canada from a central office. The application and week-to-week funding is accessible through portals and emails.

8. Does it really work?

There is no better way to find out if something works but by reading some examples of successful payroll funding and staffing company partnerships. Here are a couple:

10MM line for our Staffing client

“Thank you, thank you, thank you. I have never seen such team work on both sides…. Unbelievable, I am thrilled! I can’t thank you guys enough you did an incredible job. It was an incredible two-three weeks.”

It is expressions like these that make our team love what we do! Here is how it went.

Problem: This staffing client had a maxed out current bank line that wasn’t giving him the availability he needed. They came to us only weeks out from the end of the year and if they didn’t find another financing facility he would be largely penalized by his current bank.

Solution: We were able to provide him a 10MM line from term sheet to close in two weeks. This enabled the company to have the capital to continue to grow and have the liquidity to pay for necessary business expenses. He needed more availability at a competitive price and the transaction closed in a very timely manner and that's what we delivered! Both sides are very happy about how everything went and are looking forward to seeing this clients continued growth both organically and through acquisitions.

36MM - Reaching the limits of their current factoring arrangement.

Our new client, a staffing company specializing in logistics was previously with another less flexible factoring company. Their company experienced recent rapid growth to near 36MM dollars in sales annually. As expected, a business growing at this pace is going to experience growing pains and this business was no exception. Their current factoring company no longer wanted to continue to work through the issues of growing at this pace and our client needed to find a factoring company that would meet their needs.

They needed a partner that would:

  1. Provide a very high advance rate above 93%;
  2. Save them money on the factoring fees; and
  3. Have the expertise in staffing to help them through some of the issues they were experiencing.

Meritus Capital came to the rescue and provided what they needed. We were able to give them:

  1. The availability to meet all of their growth needs;
  2. A 25% savings on their current factoring rate; and,
  3. The partnership and tools to effectively deal with their current growth challenges.

This business is now well-positioned to maximize the opportunities they are being presented with. They can be far more profitable and have the tools and a financial partner in place for continued expansion.

Payroll Funding Needed (Canada)

Challenge: Our client in Ontario, Canada, had the experience, the relationships, and was ready to build his own company in the staffing industry. He had previously grown a company by 11MM dollars in annual revenue, but now he was ready to be an entrepreneur. The only thing he was missing was a funding partner that had the capacity to give him unlimited capital at a low rate enabling him to compete with established competitors.

Solution: We were able to provide a 2MM dollar funding line for our client at an extremely low pay rate. He will only pay that low rate on what he actually uses in funding whereby we do not force him to borrow more than is needed. The company is growing rapidly and is now positioned to leverage our capital and his experience to equal a fantastic success!

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About Paul DeLuca

Mr. DeLuca is a successful corporate finance executive, having completed 100′s of finance and M&A transactions. Mr. DeLuca has extensive experience and contacts in the corporate capital markets, health care and staffing industries. He has successfully started and sold a number of companies. At Meritus, he is the principal decision maker on finance transactions. Mr. Deluca looks for rewards where others may only see risk. In addition to serving as CEO of Meritus, Mr. DeLuca’s keen business finance and operations insight is utilized on several corporate boards. He takes pride in his entrepreneurial spirit and how it is enhanced by his experience and capacity to participate in his clients’ successes.

Paul DeLuca CEO of Meritus Capital

Principal at Meritus Capital

Paul DeLuca


Payroll Funding in the U.S. and Canada with Meritus Capital

Payroll Funding Client


  • 19 Years factoring temporary staffing
  • Over 1 Billion funded in Staffing alone
  • Provided funding lines for companies large and small
  • Advised in over 1 Billion in staffing and M&A

Payroll Funding Lines

  • 90-95% Advanced Rates
  • Discount rates from 0.30-0.59%
  • Funding startups to $25MM lines

The Meritus Capital Difference

  • Easy online application
  • Great personal service
  • No requirement to fund all your invoices
  • Creativity to get the tough ones done

Meritus Capital helps you operate your staffing operation smoothly here's how!

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