Invoice finance agreements will be priced based on your business and requirements, however invoice discounting and invoice factoring have different fee structures.
Invoice discounting is structured like a loan, with interest payable plus an administration fee.
Invoice factoring charges are known as a ‘factor rate’, which is based on level of risk, volume of invoices, and the time credit is extended for, amongst other factors.
Then in the next month’s pay run:
‘Admin’ > ‘Payroll’ > select the current pay period and the same employee > ‘Add pay item’ > add the salary advance as a negative value > fill in the ‘Description field, and save.
For example, if the salary advance is £2,000 – you’ll need to add the negative amount of £-2,000.
Note: Salary advances are typically adjusted in the following month's payroll, but can be done at another time, depending on your agreement with the employee.
A salary advance is not a loan – there is no interest charged to the employee. Salary advances are taxed like regular income.
If the salary advance you’ve paid to an employee for a year is more than £10,000, HMRC may consider them as a Benefit in Kind, meaning you’ll need to report this in a P11D form.
