Understanding Payroll Funding Arithmetic

Further reading: Payroll Funding and Invoice Corrections

Most people get introduced to the payroll funding business when they need funds to start or grow a staffing business.

On its surface, the service is simple - as an owner you take care of your clients, you take care of your employees, and you let a full-service payroll funding provider do all the dreary work of processing payroll, forwarding funds to meet that payroll and all the rest that goes with invoicing and collections.

As you dig deeper, the math that goes along with that stops being so simple and those in the business of funding temporary payroll like TempWorks end up with a variety of formulas to help reduce the complexity.  Here is some of the language and their related forumals plucked straight out of our funding software code:

Some definitions

• Invoice Amount (IA) - the original amount due from the account debtor
• Financed Amount (FA) - the amount the factor has paid towards the purchase of an invoice
• Client Pay Amount (CP) - the amount paid (in cash or adjustments) by the account debtor to the factoring client
• Factor Pay Amount (FP) - the amount paid (in cash or adjustments) by the account debtor to the factor or (3rd party factor, see "fmPayeeId")
• Factor Fee (FF) - amount charged in fees
• Due Factor (DF) - the remaining amount due to the factor, also called Funds Employed
• Due Client (DC) - the remaining amount due to the client when the invoice is paid in full
• Reserve Released (RR) - the amount paid to the client by the factor

Some formulas

• Due Factor=RR+FF-FP
• Due Client=IA-FF-RR-CP
• notice that DueFactor+DueClient=RR+FF-FP+IA-FF-RR-CP which simplifies to IA-FP-CP which says that the total remaining to be disbursed to either the factor or the client is the amount of the invoice less any payments (in cash or adjustments) made to the factor or client

Some reports

• Earnings Report. Summarizes for the specified time period all funding transactions against your account.
• Invoice Detail. Details every funding transaction applied to an invoice.
• Invoice List. A list of every invoice funded

Some Funding Transactions

• Wire Reserve Immediate Debit reserve immediate, credit cash
• Trans/Misc Fee Debit reserve, credit factoring revenue
• Admin Fee Debit reserve, credit factoring revenue
• Interest Debit reserve, credit factoring revenue
• Final Reserve Released Debit reserve, credit reserve immediate
• Invoice Financed Debit A/R, credit reserve
• Chargeback Finance Neg Debit A/R, Neg credit reserve
• Wire Net Pay Debit reserve immediate, credit cash
• Initial Reserve Released Debit reserve, credit reserve immediate
• Absorb Payroll Tax Liability Debit reserve immediate, credit reserve tax
• Absorb Payroll Deduction Liability Debit reserve immediate, credit reserve
• Chargeback Release Neg Debit reserve, Neg credit reserve immediate
• Wire Received  Neg Debit reserve immediate, neg credit cash
• Absorb Sales Tax Liability Debit reserve immediate, credit reserve tax
• Factor Loan Debit factor loan, credit cash
• Factor Loan Repay Debit reserve immediate, credit factor loan
• W2 Processing Fee Debit reserve, credit factoring revenue
• Partial Reclaim Neg Debit reserve, Neg credit reserve immediate
• Recoup Payment Neg Debit A/R, Neg Credit reserve
• Client Cashed Check Neg Debit reserve, Neg credit reserve immediate
• Factor Loan Writeoff Debit Bad Debt, Credit Factor Loan
• Absorb Historica lTax Liability Debit reserve immediate, credit reserve tax
• Admin Fee Refund Neg Debit Reserve Immediate, Neg Credit Factor Revenue