07 Jun The Benefits of Payroll Financing for Retail Businesses
There are many causes for cash crunches in the retail industry, including seasonality, supply chain disruptions, stagnant inventory, and poor revenue projections. In my experience, one of the most overlooked causes is delayed receivables. Many small businesses, especially suppliers conducting business with larger corporations, structure their invoicing around extended payment terms (EPTs), with payment periods typically ranging from around 30-60 days (but sometimes up to 120 days). Naturally, these long payment periods can cause significant cash flow issues, which is why so many retail operations turn to small business loans for help.
How EPTs Can Hurt Your Retail Business
The problem is that, while EPTs may be a cushy cash flow strategy for clients and customers (not to mention that it is a prerequisite for doing business with most large corporations), for many business owners, it can be a cash flow nightmare, especially when it comes to payroll. Most businesses submit payroll weekly or bi-weekly, and those open invoices can put a serious strain on a business’s working capital. Unlike retail factoring loans which has its downsides, a loan to cover payroll is one of the best ways to avoid the issue entirely.
Regardless of the cause, cash flow issues, and, by extension, payroll issues, can affect any retail-related business, including:
- Brick-and-Mortar Retail
- Online Retail
Real-Life Case Studies on the Benefits of Payroll Financing
Here are just two quick examples that illustrate how payroll financing can provide a valuable, low-cost solution to your cash flow issues:
- A manufacturer based in California received an atypically large order, which forced them to allocate nearly all their manpower to fulfilling that order. The problem is, the order would not be paid for until it was delivered and inspected, a process which would take 30 days. Rather than going through the extensive process of acquiring a traditional retail store business loan, the business was able to stay afloat during such a time and labor-intensive order thanks to our payroll financing loans.
- A small online retailer doubled its workforce in anticipation of its busy season. We were able to provide payroll funding for a 6-week period to help them bridge the gap between hiring season and the influx of sales.
The Bottom Line
These examples are extremely common in the retail industry. In some cases, businesses may need one-time financing just to get over the hump, while others may need to utilize payroll funding on a more consistent basis. Either way, this type of loan for retail shop owners can really help keep your business finances healthy.
Cash flow issues may affect many retail businesses, but it doesn’t have to be your norm. If you need low-cost, short-term financing for your retail business to operate efficiently, call Payro Finance today to see how we can help.