Interview with the LinkedIn Lady: Non-recourse account receivable factoring
Channel: Chris Lehnes | Factoring Specialist
Date: 2012-01-25

I recognize that many business owners are not familiar with your product, account receivable factoring, can you explain in simplest terms what factoring is and how it works?
1) Not a loan, but purchase of an asset
2) When a B2B business completes a sale -- product or service
3) Invoice issued
4) Verify
5) Advance 75%
6) Collect from customer
7) Fee determined based on time 2.5% - 3.0%/mo
8) Balance less fee paid to client
9) Use like a line of credit
10) No caps -- can grow as a business grows

You described the cost of your financing as 2.5% - 3.0% per month, that sounds expensive.  How do you justify that cost to your customers?

1) Only expensive if compare to bank financing
2) Not an option for our clients
3) If can get bank loan, do it
4) VC /Equity -- give up ownership, share of profits, voting rights
5) Incremental business 
6) Stronger margin businesses

You mentioned that part of your process is to be in direct contact with your clients' customers.  I can imagine that might make some business owners nervous.  How do you interact with their customers and how do you put your clients' minds at ease that you will not do anything to jeopardize their customer relationships?
a. Every prospective client concerned about this
b. Worried about perceptions
c. Never a problem
d. Larger companies -- flip a switch in AP system
e. Will notify by letter of financing arrangement
f. All payment flow through factoring company
g. Late payments are handled collaboratively
h. Can provide comfort by speaking to existing clients


What types of businesses are good candidates for factoring?
i. Wide variety of B2B businesses with good quality customers
j. Mfg
k. Wholesalers
l. Distributors
m. Staffing
n. Consulting
o. New, Quickly Growing or struggling
p. Not Bankable, good customers

For what purposes can a company use factoring proceeds?
q. Factor does not control how funds are use
r. Project financing
s. Bridge financing
t. Inventory purchase
u. Business acquisition


What information should a business owner expect to provide to apply to be approved for a factoring facility?
v. Very simple application process
w. No financial statements, no tax returns, no personal credit check
x. AR Aging
y. Customer list
z. Lien on AR
aa. Margins
bb. Our analysis is on the creditworthiness of the customers, not the financial condition of client

How long does the process take?
Proposal in 24 hours
Funding in 3-5 days with no surprises
Longer is bank in place

Can you give some examples of businesses you have worked with and how factoring was able to help them?

Consumer Electronic Manufacturer
Established Business 
Seller of low-end tables, e-readers, mp3 players
Great customers -- WalMart, Target, Amazon, Kohls
Defective product shipped
High returns rates
Defaulted on bank covenants
Paying down bank loan, but need financing ASAP to meet working capital needs
No other banks would touch it and other factors turned down due to size and industry
Introduced to them last week, expect to fund this week

Commercial Printer
Well-established
Recently acquired by our client using seller financing
Relationship with seller was strained but operating results not strong enough to support bank loan
Client leveraged equipment to raise cash to pay off seller, but was not sufficient to meet working capital needs
We factored receivables to provide the operating capital they need until business qualifies for bank financing


Security Software provider
Merger planned, but fell trhough
Neglected financials, product development
Revenues down -- no longer  bankable
Other factors shied away due to industry and past issues with management

How does Versant Funding differentiate itself from all the other factoring companies out there?
Small company
Nimble 
Easy access to decision maker
Larger, more complex transactions
Reporting capabilities -- information is vital

Since any company in the factoring business must have significant expertise when it comes to account receivable management, what tips could you provide our listeners on how best to handle their accounts receivable.
Be cautious of excitement over a new sale
Know your customer
Show care in terms you offer
Research credit worthiness of customer
Say no
Reporting system
Assign responsibility for AR management
Stay on top of accounts
Contact customers regularly
Avoid customer concentrations