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Home Based Businesses Can Factor Their Invoices Just Like Big

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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. Johnson's 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.

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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 factor's

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.

About the author:

Donna Poisl is President of Creative Funding Solutions. CFS

works closely with several of the best factors and p.o. funders

in the country, each with different rates, fees and requirements

and is able to find the best one for each client. Contact Donna

at http://www.solvecashflowproblems-factoring.com