If wages are due before money you are owed comes in, short-term funding can cover the gap. It is a bridge. It makes sense when you know the money is coming and roughly when. It doesn't fix a business that doesn't earn enough to pay its staff each month, and borrowing to do that usually makes the problem bigger.
What's usually happening
- A big customer is paying late, but staff still need paying on the 25th or the last Friday.
- You have taken on people for a new contract, and the first payment from that contract is weeks away.
- A seasonal business is paying a full team before its busy months bring the money in.
SARS doesn't wait either
Paying wages also means paying SARS. SARS says: "You need to submit your EMP201 and the payment, if applicable, within 7 days after the end of each month, e.g. by the 7th of each month." If the 7th falls on a weekend or public holiday, the EMP201 and payment are due on the last business day before it.
So a payroll gap is often two gaps: wages at month end, then the EMP201 a week later. Plan for both. If PAYE, UIF or SDL is paid late, SARS charges a once-off 10% penalty on the late amount.
Which funding tends to fit
| If the gap is because... | Look at | Why |
|---|---|---|
| Customers owe you on invoices you've already issued | Invoice discounting | Turns those invoices into cash now, settled when your customers pay. It deals with the cause of the gap. |
| You need staff to deliver an order or tender you have won | Purchase order funding or tender funding | Covers costs for that job. Ask whether labour counts as well as materials. |
| Takings are uneven but you take regular card payments | Merchant cash advance (MCA) | With the card-split version, collections move with your card sales. |
| Several costs are due at once and none is tied to one invoice or order | Working capital | General funding that can be used for salaries. Usually repaid in fixed instalments. |
Three questions before you sign
- When exactly does the money come in? Name the customer, the invoice and the date. If you can't, think hard before you borrow.
- What is the total cost in rand? Ask for the full amount you will repay, not just the rate or factor.
- What happens if the customer pays late again? Know whether the repayment is fixed or moves with your sales, and what you'd do next month.
If the honest answer to the first question is "I'm not sure", talk to your accountant about costs first. Funding next month's wages as well won't solve it.
What we look for
We can help registered Pty Ltd companies and close corporations (CCs) that have traded for at least 12 months and need from R50,000. For a cash advance, we look for turnover of at least R600,000 a year. Funding takes time to arrange, so start before payday, not on it.
Next step
Check your fit. It takes about 2 to 3 minutes and needs no documents to start.
Sources
- sars.gov.za: You need to submit your EMP201 and the payment, if applicable, within 7 days after the end of each month, e.g
- sars.gov.za: : "a once-off percentage-based penalty is imposed at 10% on all amounts that are paid late or remain unpaid
- sasfa.net: card-split MCA collections as a share of card receivables