Invoice Factoring: Helpful To Sole Traders Who Don't Want to Be Alone

15/06/2011 02:15

factoringThere are numerous factors why small companies may decide to operate as a sole trader. For many little company owners, the simplicity and ease of setup are the main drivers. However, there are other reasons as well including:
* Easy to administer.

Total control of assets and also the capability to make critical business decisions

* Reduced reporting obligations.

Business losses can be offset by the earnings of the business itself.

* No obligations to pay payroll tax, superannuation contributions or workers' compensation on income earned from the business activities.

Ease of modifying legal structure based on current conditions.

Nevertheless, the downside of this company structure is the difficulty on acquiring alone based on the merits of the company alone. Because the "assets" of the business are also the individual assets of the business owner it is not simple for a lender to figure out what the collateral is for the loan provided. Most financial institutions will generally only lend to a sole trader who has property assets simply because they can acquire a first security position on the property as collateral.

Nonetheless, these sole traders may find some credit facility within the factoring business. A great number of factoring companies do not cater to sole traders, but those that do will ask a sole trader to sign a Personal Guarantee and should present an asset or two and these assets may be anything apart from property.

Factoring is a type of credit provided to a small business based on the value of the invoices - or accounts receivable - generated by the business. In the sole trader's case, these invoices are just another asset that they own personally as a result of their business structure within the exact same way that a piece of business equipment is also a personal asset. The factoring company provides a credit line for the small company which may be used as a working capital and this credit line retires once the customers of the company with outstanding invoices pay.

Obtaining finance is challenging for all small companies nowadays and even more so for the company that is structured as a sole trader. Whilst most monetary institutions merely won't lend to sole traders unless they own property, you will find some factoring businesses who make a marketplace in this segment. Sole traders can make use of factoring in order to have the ability to fight a fair fight with their larger competitors and make sure that they do not fall due to the lack of finances for expansion.

Call The Interface Financial Group (IFG) at 1300 957 900 for much more details.


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