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Foreclosure Cleanup Business Owners: How to Get Operating Capital in 1-3 Days

Updated on December 15, 2009

Get "Small Business Lending" Without Going Through a Bank!

If you want to start a foreclosure cleaning business, or are already have one but are being squeezed by a lack of operating capital, following is an answer to the problem you may not have thought of. It’s one that can be used by almost any type of business that has cash crunch problems due to a lag time in getting paid.

Ever heard of small business factoring? No? Read on.

What is Small Business Factoring?

Factoring is a financial transaction where a business sells its accounts receivables – its invoices -- to a third party. This third party is called a factor.

The invoices are sold at a discount in exchange for being able to get money immediately. Depending on a host of factors – eg, type of industry you’re in, credit rating of the businesses you do business with (not you or your business), how long it usually takes for you to be paid by your customers, etc. – the factor will advance you anywhere from 70 to 90 percent of the value of the invoices you factor.

4 Pros of Small Business Factoring for Foreclosure Cleaning Businesses

I. Immediate operating capital; no more cash crunches that can limit growth. As stated just above, a factor will advance you anywhere from 70 to 90 percent of the value of the invoices.

II. Your personal or business credit has nothing to do with your ability to factor. Factoring is different from a small business loan because it is asset-based (ie, based on the outstanding receivables); not credit based.

III. Once all paper work is completed – and it can be extensive – the factoring process is easy. You can get your monies in 24-72 hours usually.

IV. If a client doesn’t pay, the factoring company handles collection efforts, leaving you free to run your business instead of acting as a collection agent.

4 Cons of Small Business Factoring for Foreclosure Cleaning Businesses

I. The industry is full of some shady characters; do you homework.

II. You may lose some business with slow-paying, but loyal customers. This is because factors handle the collections; not you. And, when you sign on with them, they dictate how to handle a problem with a slow paying customer, not you. This can lose you customers. Reputable factors will encourage you to work with them in order to keep your customer relationships in good standing.

III. You give up a percentage of your profits forever. Fees vary according to company, so pay attention to what you’re signing onto.

IV. While some factors allow you to factor only the invoices you want with them; others specify that if you do business with them, ie, you have to factor all of your invoices with them.

Have a Business Cleaning Foreclosures? Avoid a Cash Crunch with Small Business Factoring!

As a foreclosure cleaning company, say your company bids on – and wins – a job that’s going to gross you $10,000. But, you need to put out $3,000 to get the job done, eg, rent a dumpster, pay subcontractors, buy supplies and pay dumping fees.

You know your company can handle the job, but you don’t have the cash to lay out to get the supplies and pay subcontractors. BUT, you have invoices outstanding to the tune of $6,300, which probably won’t be paid for another 30 to 45 days.

The client can’t – and won’t – wait that long.

This is when factoring can come in handy. You can simply factor your outstanding invoices and get the money you need to land this oh-so-important client.

There is an Application Process to Complete When Working with a Small Business Factor

You have to fill out an application. This involves giving them all of your business information, eg, EIN number, how long you’ve been in business, banking information; type of business; insurance info; etc.

Again, they are not gathering this to check your credit or anything. They just want to know who they’re doing business with.

They will run a credit check on the companies whose invoices you want to factor with them, for these are the people that ultimately pay them.

Which Invoices to Factor Tip: As previously mentioned, some factors require that you factor all of your invoices with them. Don’t sign on with one like this if you can avoid it. Look for one who will factor only those invoices you want to factor, eg, factor you on an “a la carte basis”.

Why do this? Look at it this way, if you can afford to wait to get paid for a $1,700 job, then wait. Why give away profits when you don’t need to?

Bottom Line on Working with Small Business Factors

It’s a great way to grow your foreclosure cleaning business. But, do your due diligence and investigate any small business factoring firm you’re thinking about working with before signing on.

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