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Home Based Businesses Can Factor Their Invoices Just Like Big Companies Do!

by Donna Poisl

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 cant 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 doesnt 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 customers 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 youll 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.

Dont 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.

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

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