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Creative Ways to Make Payroll as a Small Business Owner

As a small business owner, one of the scariest things can be to not have enough money to cover your employees' salaries. Due to the fact an IOU will not work in a case like this, you have to resort to some creative strategies in order to make ends meet. If you are unable to come up with the money, you could have your hands full with lawsuits from your employees; repercussions from the Department of Labor; and penalties from the IRS as you miss your payroll tax deadlines. Before you have to resort to closing your doors and laying everyone off, consider one of these strategies to get your numbers back into the black and your business back in the good graces of your employees.

Liquidate Receivables

Typically, companies that are unable to meet their payroll needs have a large amount of outstanding accounts receivable. Whether you have consistently had accounts that did not pay on time or you just got hit hard one time, the financial result can be very devastating. If you have already done the obvious and tried to collect your receivables with no luck, consider liquidating them by offering significant discounts to the people that owe you. If you give companies a chance to wipe their debt clean for a fraction of the amount they owe as long as they pay you right now, chances are they will come up with that sum. While it is not ideal to give up large amounts of money that you are owed, if it means cash in your hand today, it could be well worth it.

Hard Money Loan

Hard money loans are synonymous with payday loans for consumers. They offer a way to get money fast in exchange for high fees and interest rates. The loans are offered by private banks, credit unions, and some mortgage companies. The credit history of your business does not play a role in qualifying for this loan – it is strictly based on the amount of collateral you can put up. Most lenders will give you 70% of the value of the property you post as collateral. You can expect to pay a much higher than normal interest rate – sometimes starting at 12% and going up to 30%, but every lender is different, providing different terms.

Collect Accounts Receivables Early

If you have a large amount of outstanding debt that is not yet due, but you know that your clients can pay it, offer them an incentive for paying early. This typically works with clients that always pay you on time and are loyal clients. By offering them a discount for paying their bill early, they get the debt off of their back while providing you with the funds you need right now in order to make payroll. Make sure that you are very specific with the terms, especially regarding when you expect payment by in order to extend the discount in order to offset any confusion or disaccord among your clients.

Sell Accounts Receivable to a Factoring Agency

If a large number of your clients are big name clients and their debts are outstanding, you can consider selling their invoices to a factoring agency. This agency purchases outstanding invoices at a discount. This gives you the cash you need upfront while taking the burden of getting the invoices paid off of your back. The problem with this method of financing is that it will cost you the longer it takes the factoring agency to get the invoice paid. Many agencies will charge you an additional fee (typically a percentage of the amount owed) if the invoice takes too long to get paid. In essence, it works like interest for you, but it allows you to get your payroll paid on time and avoid the penalties and fees that would result in the event that you did not pay your payroll.

Sell Surplus Inventory to Mass Sellers

If you have a large amount of inventory lying around, you can make some quick cash on it by liquidating it fast. If you are unable to sell it the standard way, use mass sellers online to get it moving. Places like eBay and Amazon are a great place to sell surplus inventory as they have a large amount of traffic and advertising and have a good reputation. If you do not have the time for these websites or you need the funds much quicker, you can also use a liquidating company. Of course, you are going to have to sell your products at a discount, but you will be able to get the cash you need in your hands now.

Ask Vendors for Credit

If you have a longstanding relationship with many of your vendors and you have always been timely with your payments, you may be able to ask them to extend credit to you or at least defer your payments for now so that you can make payroll. This is usually done on an individual basis and not all vendors will agree to it, but if you are hard up for the cash, it is always worth asking. Always start with the vendors you have the most successful relationship with first and then work your way down from there until you have the petty cash that you need.

Not being able to make payroll can be very scary – in the worst case you could lose your business but still find yourself in deep financial trouble as the penalties and fines come rolling in long after the business is closed. Using a little creativity and courage, you can get that payroll paid; you just have to think outside the box. Make sure to weigh all of your options and the fees that will be charged in order to ensure that you are not just setting yourself up for a domino effect financial disaster. If you cannot afford the fees now, it will only get worse, so do your research before agreeing to anything.