Archive for January, 2010

One of the greatest challenges faced by an Independent Computer Consultant is receiving payment for services rendered in a timely fashion. When serving small business customers, it is commonly expected that charges for services will be invoiced on a monthly basis for all services rendered for the previous month.

Now, you can be diligent and consistently mail all of your invoices out on the first of the month. But that doesn’t mean your customers will be mailing you a check on the 2nd.

As a small business owner yourself, you will have financial responsibilities to meet on a regular and timely basis. You can work very hard to make sure that your receivables are sufficient for meeting your expenses, but it won’t do you any good if your invoice for your hard work sits in your client’s inbox, unpaid for weeks or even months.

Fortunately, there’s a very easy solution to making sure that you receive payment ON THE VERY SAME DAY YOU GENERATE YOUR INVOICE.

You have a Factoring Company purchase your receivables.

Once a month (or as often as you like), you can A transmit a copy of all of your invoices directly to your Factoring Company, for which they will, on the same day, deposit up to 85% or more of the total amount directly into your bank account.

Then, once your client mails payment directly to your Factoring Company, you will receive the remaining 15% of your invoice, minus the fee charged by the factoring company, which will vary depending on how long it took to receive payment. A typical rate could be from about 1.2% for payments received within 30 days to 1.6% for invoices outstanding for longer than 3 months.

For me, these fees are well worth the benefit of knowing at the start of each month, EXACTLY how much money will be received and EXACTLY on which date!

It’s also a huge benefit not have to deal with any collections.

If an invoice is slow in getting paid, the factoring company is your outsourced “receivables department”, who will make the initial collection attempts.

Another great benefit of factoring receivables is the ability to generate additional income outside of the regular billing cycle.

For my small business clients, I provide a Proactive Maintenance Plan, for which I charge a flat, monthly fee. This covers general monitoring and remote computer support.

I will often make recommendations for projects that don’t fall under the scope of the regular, monthly maintenance plan. For example, replacing a firewall.

This project would be billed at an additional rate to the flat, monthly fee. If I complete the installation of the firewall to my client’s satisfaction on let’s say the 15th of the month, I can create the invoice for this project, submit it to my factoring company on the 15th and receive payment the same day.

Having reliable cash flow is critical to all businesses, especially to a start-up without substantial capital sitting in the bank account. Factoring your receivables can provide the financial stability you need when starting a small business of your own as an Independent Computer Consultant.