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How your Payroll Processing Could be Impacting Your Cash Flow

There are many factors that could be affecting the cash flow of your business. Your forecasts, your monthly expenses, your payment terms - you name it. However there is one factor that normally gets forgotten when looking at cash flow management and that’s your payroll processing.

It may not seem that important, but the way you process your staff’s payroll can significantly impact your cash flow. Payroll processing is one of the biggest expenses for most food and beverage businesses and it can be the most time-consuming admin work to do. So, giving it the attention it deserves can certainly help your business stay on solid ground and ensure you don’t get stuck falling short.

But how does your payroll processing really affect your cash flow?

1. IT’S AN OPERATING COST THAT CAN'T BE AVOIDED

Reducing your operational costs is just one of the many ways you can get on top of your cash flow. Of course, paying your staff is a fixed cost but by making some simple changes you can directly impact the amount of cash coming in and out of your business.

Firstly, we suggest ditching the bi-weekly payroll schedule and switching to bi-monthly. They may seem exactly the same, but in actual fact, they’re not.

  • When you’re using a bi-weekly schedule, you issue salaries to your staff every two weeks.
  • When you operate on a bi-monthly, also known as semi -monthly, your employees will receive paychecks on the same two days of each month. Usually, it’s the 15th and 30th.

How can switching from a bi-weekly to a bi-monthly payroll help you reduce your operational costs?

With a bi-monthly payroll method, you only have to issue paychecks exactly 24 times each year (twice a month for 12 months).

With a bi-weekly schedule, you’ve got 26 paychecks per year. This is because there are two months in a year that will have three payroll periods. For these two months, you’ll have to process another set of paychecks to cover the third payday.

So, if your business is running short on cash over a particular period, having to pay that third cycle will be an additional burden for you. It might lead you to use your personal money or borrow the cash you've reserved for other things - like future expansion.

By moving to a bi-monthly schedule you'll know the exact amount of money you need to spend each month for your staff’s salaries - giving you greater control over your budget and helping you with your cash flow management. Plus, don’t forget all the time you’ll save by not having to process those extra paychecks.

2. IT’S COSTLY AND TIME-CONSUMING, TAKING YOUR FOCUS AWAY FROM MANAGING YOUR CASH FLOW EFFECTIVELY

Payroll processing is among the biggest expense of money and time for most food and beverage businesses. And it’s easy to see why, especially if you’re doing it manually - just think of the outlay for the paper and ink alone!

Doing your own payroll processing is also time-consuming admin work that can take you away from other business critical processes. Nowadays, most small-to-medium sized suppliers and wholesalers do their payroll processing digitally to save time and money. So if you aren’t already, this is another simple step that can help you simplify things. 

There are several electronic payroll systems that take the stress and headache out of your payroll processing by doing all the work for you. They calculate each staff member’s pay, generate their payslips automatically and email them directly. By moving to a paperless payroll system you will be saving yourself precious time and money.

Here are some of the best payroll systems around:

By making these simple process changes you will significantly impact your business's cash flow. Operating on a bi-monthly schedule and moving to an automated payroll system will reduce your operational costs, cut down on the amount of tiresome paperwork and you'll also have more time to focus on growing your business.

Want to read more cash flow advice like this? Head on over to our blog.

Avlya Jacob

Avlya Jacob is a content writer at Ordermentum. When not working, she enjoys writing online novels and spending time with her husband.

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