Factoring Blog

Financing For Self Employed People

self employed personFor many self-employed people, finding financing in the current environment is nearly impossible. Most lending institutions are only providing financing for larger well-capitalized companies – those that can show substantial assets, impeccable financial statements, and the track record of growth. However, most self-employed people have the same type of financial problems that larger companies have. They have the same needs, just in a much smaller scale.

Although little know, a large percentage of home based companies sell their products and services to corporate customers. Their most common financial problem originates from having to offer terms to larger commercial customers. Most large corporations treat self-employed individuals the same way they treat any regular vendor and will demand payment terms from them. The self-employed person will need to deliver the product/service and then wait anywhere between 45 to 60 days before they can collect their invoice. This usually catches most self-employed individuals by surprise since as few plan for this contingency. This get more problematic because for self-employed individuals there is little difference between company revenues and personal income.

A solution for self employment

There is one way to solve this problem that does not require your customers to pay sooner – it’s called invoice factoring. It solves this problem in a simple and effective way. A financial company advances funds to your small business using your slow paying invoices as security. This provides you with the needed funds to cover your important expenses, such as salaries. It also provides a level of predictability to your revenues, which enables you to plan your operations better.

Factoring companies usually structure their funding transactions using two installment payments. They provide you with the first installment as soon as the work/product is delivered and completed. The first installment covers up to 85% of your outstanding invoices. The remaining 15% is usually held in reserve and is advanced (less the funding fee) once your customer pays for the invoice in full. Your customers are not required to pay any sooner and pay your invoices on their regular schedule.

Available to small companies and home based businesses

Meeting the requirements to qualify for factoring line is comparatively easy and not as difficult as the requirements for most business loans. It is very important that your invoices are of high quality and that your customers have good commercial credit. This makes sense, since your invoices are the collateral that the factor is  financing. This solution lets you leverage the credit worthiness of your customers and use it to grow your own company. Additionally, you should have good billing practices, unencumbered invoices, and a good reputation.

Use it for growth

Most small business factoring lines are well-suited to the requirements of self-employed people. Since the lines are based on your invoices, they’re flexible and can adapt to your growing business. This provides an important level of financial support as your company gets new customers and grows. Because of this, small business factoring is becoming an attractive financing option for self-employed people and home based entrepreneurs that have working capital problems because of slow paying large customers.

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