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With your home or simple outside office as your base, factoring is an excellent means of making part-time or extra income.
Those who choose to factor part-time might fit any of the following descriptions. They can be people who:
Are happy with their current job and just want to make some extra money on the side.
Are retired or are soon to retire.
Have full-time family obligations.
Enjoy investing as a hobby.
Wish to move gradually from working for someone else to working for themselves.
Have worked for some time in a specific industry or profession and are ready for a change or new challenge, and want to
begin gradually.
Own a business and want to add another income stream.
Are trained as cash flow consultants and wish to expand their client base or add a profit center.
Wish to factor full-time in the future, but lack adequate capital and/or experience to feel ready to make it a full-time
business.
Simply need to make additional income for any reason.
Factoring can be done part-time if you have as few as one or two clients, or even as many as a dozen. Some clients will
require more time than others depending on the number of invoices they factor, the services you provide, the industry or nature of their work, and their billing practices.
As you would expect, when you start
out the time you spend setting up a new account, performing due diligence, and exchanging paperwork and funds will take longer than it will after you’ve been doing it a while. Once you have some experience each
transaction will become a little easier and your whole operation will gradually develop into a smooth system you won’t even have to think about.
Capital Needed for
Part-Time Factoring
New small factors can begin with as little as $7,500 to $10,000 available for client advances. If you start with just one
client who is a one-person business and perhaps even part-time at that, factoring $1,000 to $3,000 per month is quite possible. These can be excellent clients as you begin, and may not demand that you have more than
$5,000 to $10,000 with which to fund them.
I strongly suggest that you not use funds which are vital to your daily
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living expenses. In other words, don’t put money you need for groceries and rent or mortgage payments into clients’ advances.
Your factoring funds must be discretionary investment dollars because, as with any investment, you are putting them at some risk. If the funds are lost due to bad debt you won’t be able to meet these basic
necessities. Remember, practically all factors experience losses sooner or later. If your loss comes early and the lost funds should have paid the next month’s mortgage payment, you have a serious problem.
However, a large number of “ordinary folks” do have adequate discretionary funds with which to begin factoring. If you stay with just one or two very small clients, you won’t need much more. This dispels the common
assumption that you need to be independently wealthy, receive an inheritance, or sell highly valuable assets to have enough cash to be a small factor.
How do you know how much you need? A good rule of thumb is to maintain a pool of at least 150 to 200% of anticipated cash
needs per client. That is, if a client steadily factors $5,000 per month, you should have $7,500 to $10,000 set aside for this client. If you do, you should have adequate funds to meet their factoring needs. If they
outgrow your funds available, you’ll need to obtain more money or broker them to another factor and receive an ongoing broker’s fee. Either way you continue to have income.
Why do you need more funds than a
client uses each month? This cushion is needed for two reasons. First, customers do not usually pay in precise 30 day cycles. Some will pay in 15 or 20 days, others will routinely take 45 to 60 days. Thus you will
have some clients whose customer payments are not received until two or even three advances have been made. This delay is, after all, the reason they’re factoring in the first place. If they received all their
payments immediately, your factoring services wouldn’t be needed.
Second, by its very nature factoring enables clients’ businesses to grow. With factoring they quickly have adequate cash flow and can take on
new customers and increase sales. That means that clients who start factoring $3,000 may very likely increase their factoring volume in the coming months. As they grow, you will need more funds to fuel their growth.
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Next Issue:
Software for Part-Time Factors
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