Account Receivable Factoring - A Vital Source of Business Capital
Channel: Chris Lehnes | Factoring Specialist
Date: 2011-10-17

Interview Summary

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 Distributor
New business
Owners with poor personal credit
Untested product
Had cash to mfg 10,000 units, but could not get shipped without factoring in place
Initially only one customer
No bank, no factor would touch it
Now working on their next product

Industrial Products Mfg
Well-established
Existing bank relationship
New plant under construction causing cash constraints
Bank unwilling to increase credit facility
Released lien on one customer receivable, which we factor to provide added liquidity until new plant cash-flow positive

Power Line Service Provider
Crews all over east to to repair Irene Damage
16 hour days -- double time
Large Invoices outstanding but won't be paid until October
Need to make payroll this week

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

Chris Lehnes 
Business Development Officer
Versant Funding
203-493-1663
clehnes@VersantFunding.com
www.chrislehnes.com