Payroll comes due on a fixed schedule, usually weekly or every two weeks, while client invoices are paid weeks later. Businesses that sell labor close that gap with a cash reserve, a line of credit, invoice factoring, or payroll funding, which advances cash against work already performed but not yet billed.
Why payroll and billing do not line up
Your people are paid for hours worked this week. Your client is billed for those hours at the end of a period, then takes its own time to approve and pay. Every new placement or contract adds payroll right away and customer cash weeks later, so the gap grows with the business.
Payroll costs more than wages
The cash you need each pay cycle includes employer payroll taxes, workers' compensation, and benefits on top of gross wages. The IRS explains employer employment tax responsibilities, and the loaded number is almost always higher than the headline payroll figure.
Your options
| Option | How it helps | Worth knowing |
|---|---|---|
| Cash reserve | You pay from savings. | Safe, but a large reserve is tied up and a growing business outpaces it. |
| Faster billing | Invoice weekly instead of monthly. | Helps, but clients still pay on their own terms. |
| A/R line of credit | Draw against your receivables. | Flexible, and it follows your billings. |
| Invoice factoring | Turn sent invoices into cash. | Works once the invoice is issued. |
| Payroll funding | Draw against work earned but not yet billed. | Closes the gap before the invoice exists. |
How payroll funding works
Payroll funding is structured around earned but unbilled revenue. Availability is a formula against the revenue you have earned, usually capped at 85% of earned but unbilled revenue. As long as a draw stays within that limit, it can be used for whatever it takes to perform the work, including wages, employer taxes, workers' compensation, and benefits.
It applies to work already performed, so it complements invoice factoring, which can take over once the invoice is sent, with the earlier payroll advance settled under your agreed structure. Many staffing firms use payroll funding first and factoring after billing.
Who uses it
Payroll funding fits labor-heavy businesses where payroll comes due weekly and clients pay weeks later. Common examples include staffing agencies, security companies, janitorial and facility services, and medical staffing. See the payroll funding page for how it is set up.