Cash Flow Crunch Effect on Payroll and the Business Costs
How many payrolls do you have to cover before getting paid? Simply doing the math, if you do payroll weekly and if you offer your customers 30-day payment terms, you have to keep enough money to cover 4 to 5 payrolls before you get paid for the placements you recruited.
Payroll payments have to be prompt and on a pre-defined schedule even if your customer’s money is slow in getting to you, resulting in a cash flow crunch.
The potential consequences of not meeting payroll on time can be costly, including but not limited to:
- Accruing penalties and fees for breach of state and federal regulations
- Losing insurance and benefits coverage due to not being able to pay the premiums on time
- Workers leaving and inability to attract and recruit top talent
Payroll is regulated by state and Federal laws, and though the frequency and timing may vary from state to state, one thing is certain, payroll must be made on the agreed set schedule and cannot be postponed for any reason.