Home Based Businesses Can Factor Their Invoices Just Like Big Companies Do!
by
Donna Poisl
SUMMARY:
Factoring is when you sell your invoices to an investor and get paid immediately, instead of waiting 30-60 days or longer. Home based businesses can use factors, just like the big guys do. You have to remember, though, that factoring is for business to business transactions. It cannot be for jobs you do for private consumers. |
Factoring
is when you sell your invoices to an investor and get paid immediately, instead
of waiting 30-60 days or longer. Home based businesses can use factors, just
like the big guys do. You have to remember, though, that factoring is for
business to business transactions. It cannot be for jobs you do for private
consumers.
Example: you have a catering business you run out of your own kitchen, with a
helper or two. You cater a party for Mr. and Mrs. Johnson for their 25th wedding
anniversary. You can't factor that job, because it is to an individual. But when
you cater the Christmas party or the 4th of July picnic for Mr. and Mrs.
Johnsons workers in their machine shop, you can factor that job because it is
to a business.
The same is true for cleaning/janitorial businesses: cleaning offices can be
factored, cleaning houses cannot. The same story for landscapers: mowing lawns
of homes cannot be factored, lawn work around office buildings can. I could go
on and on; photography, remodeling, gift baskets, bakery, tax preparation and
almost anything you can imagine. It usually doesn't matter what the product or
service is, it just has to be a product or service that is delivered and billed
to a business.
The credit worthiness of your customer is the most important thing the
investors look at to decide if they will purchase your invoices. Your financial
health and history will be looked at, but the decision is based mostly on your
customer's credit.
You will have to show an A/R aging report of some sort. If you use QuickBooks
or a spreadsheet it is easy to generate a report. This shows the history of the
payments: the day you invoiced a business and the day they paid. Receivables
that are paid in 30-45 days are much more inviting for a factor than the ones
that are paid in 90 days.
When you turn in the invoice to the factor, you receive an advance of 75%-85%
and you'll get the rest of the invoice amount when that bill is paid, minus a
small fee. The fee for monthly volumes of less than $10,000 will be higher than
larger monthly amounts. Fees for payments made past 45 days are higher than
short term payments. Fees for a lot of very small invoices each week or month
might be higher too, since there is much more work for the factor to do. (Each
invoice is verified.) Often, your customer will allow you to put several jobs on
one invoice, this will be easier for the factor and probably for you and your
customer.
If you factor invoices and get paid right away, just think what you could do:
pay your bills earlier and build your credit, buy more advertising, purchase
supplies for your next jobs, get quantity or early payment discounts from your
suppliers, hire more help.
Your business, regardless of how large the monthly billing becomes, can
always remain home based. It does not have to be in an office building,
especially with the ease of communication we have now. It is often a good idea
to have your business incorporated or registered as an LLC, since this gives you
some liability protection.
Ask your cashflow broker for advice. A good broker will have choices and
suggestions for you and work with some factors who work exclusively with small
businesses. Many factors have a monthly minimum of about $25,000, but there are
some who specialize in small businesses that generate much less than that.
If you decide to try purchase order financing, it is a little different. The
purchase order probably should be at least $25,000 for a funder to be
interested. It is also more expensive, since you have to pay a fee for this
money and then factor the invoice when you issue it and also pay the factors
fee. Many businesses do this rather than refuse a big purchase order. It will
often lead to many more jobs and in the long run could be very beneficial. As
they say, "80% of something is better than 100% of nothing". Obviously you have
to have a very good profit margin in this job, or plan to make less on this one
in order to get the next orders from your customer.
Don't think that factoring is only for big companies, they started as small
companies at one point and there is a good chance factoring helped them become
the big companies they are today.
Article Source: http://www.elrincondelantropologo.com/
|
Rate This Article
Add Comments
View Comments (0) 
Send To Friends
Print