Our accounts receivable factoring program can quickly meet the funding needs of businesses which do not meet the financing standards of traditional lenders, but require a cash infusion for basic survival.
Addressing the common client objection regarding how their customers will perceive their use of factoring.
Factoring and its effect on customer relationships
Factoring generally does not negatively impact client-customer relationships and can often even improve them.
Factoring generally does not negatively impact client-customer relationships and can often even improve them. Factoring is more common a practice than many small business owners realize.
It is quite routine for large companies to have suppliers which are factoring their invoices. A clients’ access to cash through factoring in many cases can be seen as a positive development by their customers, particularly if there were prior concerns about the supplier’s financial stability.
The worry among potential factoring clients about how their customers will react to the knowledge that they are using factoring service is one of the most common objections you’ll receive from your clients when they consider factoring and that objection is “What will my customers think of me?”
This concern is largely unfounded: This concern is largely unfounded: Invariably the answer is it does not negatively impact relationships with customers.
Our clients generally have very strong customers and that’s why we’re able to factor for them. We rely upon the creditworthiness of those strong customers those big companies they are already paying factors for many of their suppliers. This normalizes factoring as a standard business practice.
For the customer, adopting factoring often takes nothing more than updating a payable address in an accounts payable system and now payments coming directly to the factor rather than going to their supplier. This underscores the operational ease for the client’s customers.
In situations where a client might be experiencing financial difficulties, factoring can actually be perceived positively by customers. It’s not uncommon that if our clients have a need for factoring their customers may be aware that there is some financial distress or they might be a bit of a cash crunch so the fact that they can now tell their customers that they have access to cash through factoring could often benefit the relationship. This reframes factoring as a solution that ensures the supplier’s stability and ability to continue fulfilling orders.
While all of our clients will worry what this is going to do to their relationship with their customers what it will most likely do is improve their customer relationships
Factoring: A financial transaction where a business sells its accounts receivable (invoices) to a third party (the factor) at a discount in exchange for immediate cash.
Accounts Receivable: Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.
Creditworthiness: The ability of a borrower to repay a debt. In this context, it refers to the financial reliability of a client’s customers.
Payable Address: The designated location (physical or electronic) where a customer sends payments to their supplier.
Accounts Payable System: The system a company uses to manage and track its outstanding debts to suppliers.
Business Development Officer: An individual responsible for generating new leads and nurturing relationships to expand a company’s business.
Objection (in sales): A reason given by a potential client for not wanting to purchase a product or service.
Cash Crunch: A situation where a business does not have enough liquid assets (cash) to meet its short-term obligations.
Supplier: A business that provides goods or services to another business.
Factor: The third-party financial company that purchases a business’s accounts receivable at a discount.
For small manufacturers, navigating the global economy means walking a tightrope between fluctuating material costs, tight production schedules, and often thin profit margins. When a trade war strikes—bringing new tariffs, disrupted supply chains, and payment delays—it can push even well-run businesses into a cash crunch.
That’s where accounts receivable factoring comes in. It offers an immediate and flexible source of working capital, giving small manufacturers the breathing room they need to keep production running.
What Is Accounts Receivable Factoring? Factoring is a financing method where a business sells its unpaid invoices to a factoring company at a discount. The business receives up to 90% of the invoice value upfront, and the rest (minus a small fee) when the customer pays.
Unlike loans, factoring doesn’t create new debt—it simply accelerates access to cash that’s already owed to the business.
The Trade War Toll on Small Manufacturers—By the Numbers Trade wars hit manufacturers hard, especially the smaller players. Consider the impact:
According to the National Association of Manufacturers (NAM), tariffs in recent U.S.-China trade conflicts cost manufacturers over $57 billion between 2018 and 2021.
A 2023 survey by SCORE found that 58% of small manufacturers reported cash flow issues as their biggest challenge, exacerbated by rising input costs and delayed payments.
Tariffs on steel and aluminum alone have raised material costs by 10%–25%, depending on sourcing location and grade.
Payment terms have been lengthening, especially for B2B international orders, with many small manufacturers now facing average payment cycles of 45–60 days.
These disruptions don’t just create headaches—they create gaps in working capital that can slow or stop production entirely.
How Factoring Helps Small Manufacturers Bridge the Gap Fast Access to Cash Instead of waiting 60+ days for payment, manufacturers can get most of the invoice value within 24–48 hours. That can help cover materials, payroll, and urgent orders.
Avoiding New Debt Factoring doesn’t affect your debt-to-equity ratio or add to your liabilities—an advantage when applying for future financing or trying to stay lean during a volatile period.
Buffering Against Extended Payment Terms In sectors like electronics or industrial equipment, large buyers often demand longer terms. Factoring fills the working capital gap so you don’t have to delay supplier payments or production schedules.
Cash Flow to Offset Cost Increases If your materials cost has jumped by 15% due to tariffs, factoring helps ensure you can still purchase inventory without taking a hit to your credit line or delaying deliveries.
Freeing Up Time and Resources Many factoring companies also handle credit checks and collections. For small teams, this means more time focused on production and growth rather than chasing down late payments.
A Practical Example Let’s say a small plastics manufacturer supplies custom parts to a U.S.-based electronics company. They ship a $75,000 order with 60-day payment terms, but they need to purchase new resin (now 20% more expensive due to tariffs) and cover payroll next week.
By factoring the invoice, they receive $63,750 upfront (85% advance). That infusion keeps production moving, employees paid, and suppliers happy—without waiting two months for payment or resorting to high-interest credit.
Is Factoring Right for Your Manufacturing Business?
Factoring is especially effective for:
B2B manufacturers with reliable customer invoices over $10,000 per month
Companies with growing sales but cash flow bottlenecks
Manufacturers needing fast, recurring access to working capital
Those impacted by international trade tensions, delays, or tariffs
Final Thoughts Trade wars will continue to create unpredictability in global markets. But for small manufacturers, the ability to stay nimble and maintain strong cash flow is a game-changer. Accounts receivable factoring offers not just survival—but strategic advantage. Whether you’re sourcing new materials, expanding capacity, or just keeping your lines running, factoring can provide the capital you need to stay ahead—even when the global economy throws curveballs.
Versant has access to the capital necessary to fund larger factoring transactions than many other funding sources. Large deals!
Versant has access to the capital necessary to fund larger factoring transactions than many other funding sources.
Factoring Program Overview $100,000 – $30 Million Quick AR Advance No Audits No Financial Covenants No Long-Term Commitment Ideal for Companies with Strong Customers
We excel at LARGE & CHALLENGING deals : Turnarounds Historic Losses Customer Concentrations Poor Personal Credit Character Issues
Versant focuses on the quality of your client’s accounts receivable, ignoring their financial condition.
Press Release: (March 25, 2025) Versant Funding LLC is pleased to announce it has funded a $3 Million non-recourse factoring facility to a company which designs and distributes housewares through major grocery and retail channels.
This business was having trouble fulfilling new orders due to funding restrictions put in place by their current factoring company. An advance against all outstanding accounts receivable was needed to provide the cash to meet product demand and that is what Versant was able to offer. In addition, Versant was able to pay off and consolidate a number of other loans that had been taken out by the business.
“Versant’s factoring program was a great match for this business that was continuing its recovery from pandemic-era disruptions,“ according to Chris Lehnes, Business Development Officer for Versant Funding, and originator of this financing opportunity. “Because our approach to factoring focuses solely on the quality of accounts receivable without imposing customer-concentrations limits, we were able to provide our new client more funding than their existing factor, allowing the business to better serve its customers.”
About Versant Funding Versant Funding’s custom Non-Recourse Factoring Facilities have been designed to fill a void in the market by focusing exclusively on the credit quality of a company’s accounts receivable. Versant Funding offers non-recourse factoring solutions to companies with B2B or B2G sales from $100,000 to $10 Million per month. All we care about is the credit quality of the A/R.
Versant Funding Transaction Study Guide for Press Release
Key Concepts to Understand our latest Press Release:
Factoring: The process of selling a company’s accounts receivable (invoices owed by customers) to a third party (the factor) at a discount to obtain immediate cash.
Non-Recourse Factoring: A type of factoring where the factor assumes the risk of the accounts receivable not being paid due to the customer’s financial inability to pay. If the invoice is not paid for a reason other than a dispute between the client and their customer, the factor bears the loss.
Accounts Receivable (A/R): Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.
Funding Restrictions: Limitations placed on the amount of money a company can access, often by lenders or existing financial partners.
Advance Rate: The percentage of the face value of the accounts receivable that the factor provides to the client upfront.
Customer Concentration Limits: Restrictions imposed by some factoring companies on the percentage of a client’s total accounts receivable that can come from a single customer.
B2B (Business-to-Business): Transactions conducted between businesses.
B2G (Business-to-Government): Transactions conducted between businesses and government entities.
Quiz:
What is the primary service that Versant Funding LLC provides, as highlighted in the press release?
Specific type of factoring facility did Versant Funding provide to the housewares designer and distributor? What does this imply about the risk associated with unpaid invoices?
According to the press release, what was the main financial challenge faced by the housewares distributor before partnering with Versant Funding?
How did Versant Funding’s approach to factoring differ from the housewares distributor’s previous factoring company, allowing them to provide more funding?
What does the term “advance against all outstanding accounts receivable” mean in the context of this press release?
Besides providing an advance on receivables, what other financial action did Versant Funding take for the housewares distributor?
Who is Chris Lehnes, and what is his role in the transaction described in the press release?
What is Versant Funding’s target market in terms of the types and volume of sales their clients typically have?
Explain the significance of Versant Funding focusing “solely on the quality of accounts receivable.”
What is the dollar amount of the non-recourse factoring facility funded by Versant Funding in this specific transaction?
Answer Key:
Versant Funding LLC primarily provides non-recourse factoring facilities to businesses. This involves purchasing a company’s accounts receivable at a discount to provide them with immediate cash.
Versant Funding provided a $3 million non-recourse factoring facility. This means that Versant Funding assumes the risk if the housewares distributor’s customers are unable to pay their invoices (for reasons other than disputes).
The main financial challenge was funding restrictions imposed by their previous factoring company, which prevented them from fulfilling new customer orders due to a lack of available cash flow.
Versant Funding focuses solely on the credit quality of the accounts receivable and does not impose customer-concentration limits, unlike the previous factor, allowing them to provide more funding based on the total value of good invoices.
An “advance against all outstanding accounts receivable” means that Versant Funding provided the housewares distributor with an upfront payment based on a significant portion of the total amount owed to them by their customers.
In addition to providing an advance on receivables, Versant Funding also paid off and consolidated a number of other loans that the housewares business had previously acquired.
Chris Lehnes is a Business Development Officer for Versant Funding and the originator of the $3 million non-recourse factoring financing opportunity for the housewares distributor.
Versant Funding targets companies with B2B or B2G sales ranging from $100,000 to $10 million per month, emphasizing the quality of their accounts receivable.
Focusing solely on the quality of accounts receivable means that Versant Funding’s lending decisions are primarily based on the creditworthiness of the housewares distributor’s customers, rather than solely on the financial health of the distributor itself.
The dollar amount of the non-recourse factoring facility funded by Versant Funding for the housewares designer and distributor was $3 million.
Essay Format Questions:
Discuss the benefits of non-recourse factoring for a business experiencing rapid growth or recovering from financial disruptions, using the housewares distributor in the press release as an example.
Compare and contrast traditional bank loans with non-recourse factoring as sources of working capital for a business. What factors might lead a company to choose factoring over a loan?
Analyze the significance of Versant Funding’s emphasis on the “quality of accounts receivable” and its lack of “customer-concentration limits” in the context of providing flexible financing solutions.
Based on the information provided, evaluate how factoring can help a business overcome funding restrictions and improve its ability to meet customer demand.
Explain the roles and responsibilities of a factoring company like Versant Funding and a business development officer like Chris Lehnes in facilitating a factoring transaction.
Glossary of Key Terms:
Accounts Receivable (A/R): The total amount of money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for; essentially, unpaid invoices.
Advance Rate: The percentage of the face value of an invoice that a factoring company pays to its client upfront. The remaining amount, minus fees, is paid when the customer pays the invoice.
B2B (Business-to-Business): A business model where companies primarily sell products or services to other businesses rather than directly to consumers.
B2G (Business-to-Government): A business model where companies primarily sell products or services to government agencies or entities.
Factoring: A financial transaction in which a business sells its accounts receivable (invoices) to a third party (the factor) at a discount to obtain immediate cash flow.
Funding Restrictions: Limitations or constraints on the amount of capital a business can access from lenders or other financial sources.
Non-Recourse Factoring: A type of factoring agreement where the factor assumes the credit risk associated with the accounts receivable. If the customer fails to pay due to insolvency, the factor bears the loss (provided there are no disputes regarding the goods or services).
Working Capital: The difference between a company’s current assets (such as cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt). It represents the liquid assets available to fund day-to-day operations.
Executive Summary:
This press release announces that Versant Funding LLC has provided a $3 million non-recourse factoring facility to a housewares designer and distributor. The client was facing funding restrictions from their previous factoring company, hindering their ability to fulfill new orders driven by strong product demand and recovery from pandemic-era disruptions. Versant Funding’s solution provided the necessary advance against all outstanding accounts receivable to meet this demand and also enabled the consolidation of other existing loans. A key differentiator highlighted by Versant is their focus solely on the quality of accounts receivable without imposing customer concentration limits, allowing them to offer more funding than the previous factor.
Main Themes and Important Ideas/Facts:
Versant Funding Provided a $3 Million Non-Recourse Factoring Facility: The core announcement is the successful funding of a significant factoring agreement. The term “non-recourse” is crucial, indicating that Versant assumes the risk of non-payment on the factored invoices, provided the debt was valid at the time of purchase.
Quote: “Versant Funding LLC is pleased to announce it has funded a $3 Million non-recourse factoring facility to a company which designs and distributes housewares through major grocery and retail channels.”
Client Profile: Housewares Designer and Distributor: The recipient of the funding is identified as a company involved in both the design and distribution of housewares, operating through major grocery and retail channels. This suggests a business with potentially large and diverse customer relationships.
Quote: “…a company which designs and distributes housewares through major grocery and retail channels.”
Addressing Funding Restrictions and Growth Opportunities: The client was experiencing limitations with their previous factoring arrangement, preventing them from capitalizing on new order demand. Versant’s funding directly addressed this constraint.
Quote: “This business was having trouble fulfilling new orders due to funding restrictions put in place by their current factoring company.”
Quote: “An advance against all outstanding accounts receivable was needed to provide the cash to meet product demand and that is what Versant was able to offer.”
Consolidation of Existing Debt: Beyond providing working capital, Versant’s facility also enabled the client to streamline their financial obligations by paying off and consolidating other loans. This suggests a more comprehensive financial solution was provided.
Quote: “In addition, Versant was able to pay off and consolidate a number of other loans that had been taken out by the business.”
Versant’s Differentiated Approach: Focus on A/R Quality and No Customer Concentration Limits: A key selling point for Versant is their unique approach to factoring, which prioritizes the creditworthiness of the accounts receivable itself and does not restrict funding based on the concentration of a client’s customers. This was the primary reason they could offer more funding than the previous factor.
Quote: “Because our approach to factoring focuses solely on the quality of accounts receivable without imposing customer-concentrations limits, we were able to provide our new client more funding than their existing factor, allowing the business to better serve its customers.”
Context of Post-Pandemic Recovery: The transaction is framed within the context of the client’s ongoing recovery from disruptions caused by the pandemic, highlighting the role of flexible financing in supporting business resilience.
Quote: “Versant’s factoring program was a great match for this business that was continuing its recovery from pandemic-era disruptions,“
Versant Funding’s Market Positioning: The “About Versant Funding” section clarifies their niche: providing custom non-recourse factoring facilities to B2B or B2G companies with monthly sales ranging from $100,000 to $10 Million, with a singular focus on the quality of their accounts receivable.
Quote: “Versant Funding’s custom Non-Recourse Factoring Facilities have been designed to fill a void in the market by focusing exclusively on the credit quality of a company’s accounts receivable.”
Quote: “All we care about is the credit quality of the A/R.”
Key Takeaways:
Versant Funding successfully provided a $3 million non-recourse factoring facility to a growing housewares distributor facing funding constraints.
The transaction enabled the client to fulfill new orders, consolidate existing debt, and improve their overall financial position.
Versant Funding differentiates itself through its focus on accounts receivable quality and the absence of customer concentration limits, allowing for potentially greater funding availability compared to traditional factors.
This deal highlights the role of factoring as a flexible financing solution for businesses experiencing rapid growth or navigating post-disruption recovery.
Factoring in a Trade War: A Study Guide. Key Concepts & Overview
Trade War: An economic conflict in which countries impose retaliatory tariffs or other trade barriers on each other.
Tariffs: Taxes imposed on imported goods, increasing their cost.
Accounts Receivable (AR): Money owed to a company by its customers for goods or services provided on credit.
Factoring: A financial transaction in which a business sells its accounts receivable to a third party (the factor) at a discount in exchange for immediate cash.
Margin: The difference between a product or service’s selling price and the cost of production or service provision.
Cash Position: The amount of liquid assets (cash and easily convertible assets) a business has available.
Non-Recourse Factoring: Factoring arrangement where the factor assumes the risk of the account debtor not paying.
Turnaround: A process by which a company tries to improve its financial situation after a period of poor performance.
Leveraged: The extent to which a business is using borrowed money.
Customer Concentration: Situation where a large percentage of a business’s revenue comes from one or a few customers.
II. Understanding the Source Material
The source material focuses on the role of factoring as a financial tool to help businesses navigate the challenges presented by a trade war. Increased tariffs on raw materials and potential retaliatory tariffs on exports can squeeze businesses’ margins and reduce their cash position. Factoring offers a solution by providing immediate cash in exchange for accounts receivable, alleviating the pressure on cash flow. The material also highlights the flexibility of factoring, including its availability to companies with less-than-ideal financial profiles (losses, turnarounds, high leverage, etc.).
III. Quiz: Short Answer Questions
How can a trade war negatively impact a business’s financial health?
Explain what accounts receivable are.
Define factoring and its primary purpose.
Describe how factoring can improve a company’s cash position during a trade war.
What is the range of funding available through the factoring program mentioned in the source?
What does “non-recourse” factoring mean?
List three types of “challenging deals” that the specialist is willing to fund.
Who are the target clients for this service?
What is meant by the term “customer concentration”?
What is the estimated timeframe to advance funds against accounts receivable?
IV. Quiz: Answer Key
A trade war can increase the cost of raw materials due to tariffs and decrease revenue due to retaliatory tariffs, squeezing margins and reducing cash flow.
Accounts receivable represent money owed to a company by its customers for goods or services that have been delivered or performed on credit.
It is a financial transaction where a business sells its accounts receivable to a third party (the factor) at a discount to receive immediate cash.
It converts accounts receivable, which are illiquid assets, into immediate cash, providing a quick infusion of working capital to cover expenses and maintain operations.
The program provides funding from $100,000 to $10 million.
“Non-recourse” factoring means that the factor assumes the risk of the account debtor’s failure to pay the invoice, protecting the business from bad debt.
Three types of “challenging deals” include losses, turnarounds, and highly leveraged businesses.
The target clients are qualified manufacturers, distributors, or service providers.
Customer concentration is a situation where a large percentage of a business’s revenue is dependent on a small number of customers.
The text states they can advance against accounts receivable “in about a week.”
V. Essay Questions
Discuss the potential benefits and drawbacks of using it as a strategy to mitigate the financial risks associated with a trade war. Consider alternative financing options and their relative advantages/disadvantages.
Analyze the types of businesses that might be most likely to benefit from the factoring services described in the article. What characteristics make factoring a particularly suitable solution for these businesses?
Explain the concept of “non-recourse” factoring and its importance in a trade war context. What are the risks and benefits for both the business selling its receivables and the factoring company?
How does the availability of factoring for “challenging deals” expand the accessibility of financial support for businesses facing trade war-related difficulties?
Critically evaluate the author’s argument that factoring is a viable solution for businesses facing financial challenges due to trade wars. Are there any limitations to this approach, or specific situations where factoring might not be the best option?
VI. Glossary of Key Terms
Trade War: An economic conflict characterized by the imposition of tariffs and other trade barriers between countries in retaliation for perceived unfair trade practices.
Tariff: A tax or duty imposed on goods imported or exported internationally.
Accounts Receivable (AR): The outstanding invoices or money owed to a company by its customers for goods or services delivered on credit.
Factoring: A financial transaction where a business sells its accounts receivable to a third party (the factor) at a discount for immediate cash.
Margin: The difference between a product’s selling price and its cost of production or a service’s income and expense.
Cash Position: A company’s available cash and other liquid assets that can be readily converted to cash.
Non-Recourse Factoring: A type of factoring where the factor assumes the risk of the account debtor’s inability to pay the invoice.
Turnaround: A process by which a financially distressed company attempts to return to profitability and stability.
Leveraged: A company’s degree of debt financing; a highly leveraged company has a significant amount of debt relative to equity.
Customer Concentration: A business situation in which a substantial portion of a company’s revenue is derived from a small number of customers, increasing the company’s vulnerability if those customer relationships are disrupted.
The presentation targets individuals who work with businesses that may have difficulty securing traditional financing. The core message is that factoring provides a viable alternative for companies with strong receivables (invoices owed by their customers), especially those who don’t qualify for conventional loans. Key Themes and Concepts: Factoring Defined: Factoring is presented as the sale of a company’s accounts receivable to obtain working capital, not a loan. Versant offers a “non-recourse full notification” program. This means: Sale of Receivables: Versant buys the receivables, taking ownership of the debt owed to the client. Notification: The client’s customers (account debtors) are notified to pay Versant directly. Non-Recourse: Versant assumes the credit risk if the client’s customers fail to pay (except in cases of defective product or service). “We also take on all the credit risk of non-payment of those customers.” Why Factoring? Factoring is positioned as a solution for businesses that are “unbanked” or have been turned down by traditional lenders (banks) and often even by other factoring companies. “All of our clients in person have been turned down by banks and in many cases turned down by other factoring companies.” This typically includes companies that are: New or rapidly growing. Seasonal with fluctuating revenues. Experiencing losses or financial difficulties. Have violated bank covenants. Versant’s Ideal Client: Versant focuses on small to medium-sized companies with revenues between $1 million and $100 million. A key requirement is that their clients have “good, creditworthy” customers (account debtors). “Our analysis is on who our clients are selling to… it’s important to us that our clients customers be strong.” Customers should be corporations, municipalities, or government agencies. Versant avoids medical and construction industries due to their specialized nature. The Factoring Process: Invoice Submission: The client submits invoices to Versant for funding. Verification: Versant verifies the invoices by contacting the customer. Advance: Versant advances 75% of the face value of the invoice to the client. “We’re typically verifying by contacting the customer confirming what the invoice tells us is true and then immediately wiring seventy-five percent of the face value that invoice to our customer” Customer Payment: The client’s customer pays Versant directly. Rebate & Fees: Versant pays the remaining 25% (the “rebate”) to the client, less their fee which accrues at a rate of 2.5% for the first 30 days and .84% for each additional 10 day period thereafter. “When we receive payment well now we fold our client that remaining twenty-five percent we call it the rebate it’s the twenty-five percent we didn’t advance initially when we we funded on that invoice less our fee” Versant’s Competitive Advantages: Flexibility: Versant can handle deals that are too difficult for other factors, including those turned down by banks and other factors. “Versant’s niche is really for the most part deals that can’t get done elsewhere.” Speed: Versant can fund clients very quickly, potentially within five days of introduction if the initial information is accurate. “we can go from an introduction to a client to funding five days later” Personalized Service: Each client is assigned an account executive for personalized support and communication. Technology: Versant provides clients with online access to data about their receivables, promoting better receivables management. Non-Recourse: No personal guarantees are required from the client’s principals, which is a key differentiator from other lenders. “we do not require any financial statements…we do not require personal guarantees” Use of Factoring Proceeds: Factoring can be used for various purposes, including funding projects, fueling growth, capitalizing on inventory discounts, or managing business crises. “we’re not going to monitor we’re not going to track how our clients use the factoring proceeds but it can be any of these these bridge needs” Customer Notification: Versant uses full notification, meaning that the client’s customers are notified to pay Versant directly. Versant argues that it is a normal practice for many companies, especially the large ones that are often their clients’ customers. “factoring just isn’t the red flag that they expect…particularly when a client of ours is selling to one of the big guys…those companies are paying factors like crazy right now” Factoring’s Impact on Profit: Factoring can increase a business’s profits by allowing them to pursue incremental sales that their lack of cash flow might have prevented. “factoring will allow a business to do more revenue than it’s doing today” **podcast created with AI Assistance (https://notebooklm.google)
New Podcast Episode: Factoring – Help Your Clients Help Themselves
This podcast summarizes the key insights from an interview with Chris Lehnes, Business Development Officer at Versant Funding, regarding the role of factoring in small business finance, particularly within the context of the COVID-19 pandemic and beyond. The article highlights Lehnes’ emphasis on education and building a network of referral sources to promote factoring as a valuable alternative financing option. It also details Versant Funding’s strategic focus on “difficult deals” and its position as a bridge for businesses in transition.
Key Themes and Ideas:
Factoring: An Underutilized and Misunderstood Tool:
Lack of Awareness: Lehnes emphasizes that factoring is not a well-known financing option among small businesses or even commercial loan brokers. He notes, “It’s not anybody’s first choice of financing…They don’t often plan to focus on factoring.”
Negative Perceptions: He acknowledges that negative stories about unscrupulous factors have created apprehension, stating, “a lot of times what is known about factoring scares people…They’ve heard a bad story about some factor that was an ‘evildoer’…”.
Educational Imperative: Lehnes believes it’s crucial to educate financial professionals (brokers, bankers, lawyers, consultants) about the benefits and proper application of factoring. He wants to highlight how “well-trained commercial loan brokers will be a great asset to small businesses in this market.”
Strategic Marketing to Referral Sources Podcast:
Focus on Intermediaries: Versant doesn’t directly market to business owners but rather concentrates on intermediaries and advisors who are more likely to understand and recommend factoring when appropriate. As Lehnes says, “All my efforts are getting in front of, and speaking with, bankers, attorneys, consultants and coaches…so that when one of their challenges could be met by factoring they can recommend what I do.”
Building a Wide Network: Lehnes emphasizes the importance of having a large network of referral sources, rather than a small core group, to ensure a consistent flow of potential deals. He states, “I just have a really huge network, some of which I might only hear from once a year, or even less, but that large network is enough to keep the pipeline going.”
The Value of Endorsements: The referral-based approach depends on receiving endorsements and introductions that provide credibility and prequalification of the prospect.
Versant Funding’s Niche: “Difficult Deals” and Short-Term Solutions:
Targeting Tough Situations: Versant specializes in factoring deals that other lenders often avoid, such as businesses with poor financial performance, credit issues, or no track record. This positions them to serve businesses needing help when traditional avenues are unavailable.
Bridging the Credit Gap: Versant sees itself as a temporary solution, a “bridge” to help businesses stabilize and move towards more conventional financing options (e.g., bank loans, equity). Lehnes states, “We’re a way to get a business to the next step of their evolution, where they’re stable enough to get bank financing…or move on to a cheaper form of financing.”
Short-Term Relationships: Due to the nature of their clients, most relationships are short-term, lasting 24 months or less.
Market Conditions and the Impact of COVID-19:
Increased Need for Alternative Lending: The pandemic has made traditional financing more difficult for many small businesses, increasing the relevance of factoring and non-bank lenders. Lehnes states, “A lot of small businesses, all they know about finance is the bank…and when the bank can’t meet their needs, they’re going to need help.”
Shifting Deal Landscape: The pandemic has impacted various industries, making Versant more cautious about sectors like traditional retail, oil & gas, and travel, which previously seemed promising. As Lehnes notes, “Businesses that sell heavily into traditional retailers…or the travel industry, those are all areas that looked great nine months ago that now we’re very cautious about.”
Anticipated Credit Tightening: Lehnes anticipates banks will become more selective with renewals due to defaults and delinquencies, creating opportunities for alternative lenders like Versant. He expects that banks will “neglect or let go of the rest” of their clients that don’t fit their desired profiles.
Potential Challenges for Non-Bank Lenders: Lehnes also points out the potential vulnerability of some smaller factoring companies that rely on lines of credit from larger factors or banks, potentially leading to further market disruption as these lenders face their own challenges. He believes there could be “some pretty good scrutiny of some of those lines of credit.”
Factoring as a Source of Recurring Revenue for Brokers:
Long-Term Commissions: Lehnes emphasizes the appeal of factoring for brokers, as it provides recurring commissions for the life of a deal, unlike one-time fees from real estate deals. He says, “Factoring provides an ongoing commission. You close a factoring deal; you’re going to get a commission monthly for the life of the deal.”
Versant Funding’s Profile:
National Scope: They serve US-based businesses with domestic receivables.
Client Revenue Range: Typically between $5 million and $10 million annually, but they can handle deals from $100,000 to $10 million per month in factoring volume.
Diverse Client Base: Includes small businesses, middle market companies, privately owned, family owned, and private equity backed organizations.
Podcast Focus on Deliberate Growth: They do not aim for high-volume deal flow, but rather a slower, more focused and strategic approach, as Lehnes points out: “We’re going to do a handful of deals in a year and grow our portfolio slowly and deliberately.”
The podcast portrays Chris Lehnes as an experienced and knowledgeable proponent of factoring, particularly as a viable solution for small businesses navigating challenging financial landscapes. He emphasizes the need to educate the market, especially intermediaries, and position Versant Funding as a strategic partner, especially for those businesses that are not currently able to access traditional forms of credit. The company’s focus on “difficult deals” and its understanding of factoring as a bridge, not a long-term solution, highlight their unique position in the lending market. The article also suggests that the current economic climate, amplified by COVID-19, may further increase the demand for factoring services.
Executive Summary – Factoring Program Overview – A Primer
We specialize in providing working capital solutions through accounts receivable factoring, particularly for businesses that may not qualify for traditional bank financing. We focus on the quality of a client’s receivables (invoices owed to them by their customers) rather than the client’s overall financial health, enabling them to serve a wide range of businesses, including startups, rapidly growing companies, and those with financial challenges. We offer full notification, non-recourse factoring with a focus on speed and a personal touch, working with a network of intermediaries like brokers, bankers and lawyers, rather than marketing directly to businesses.
Key Themes and Concepts – Factoring Program Overview – A Primer
Factoring Defined: Factoring is the sale of a company’s accounts receivable invoices to a third-party factor in exchange for immediate working capital. This is not a loan; it’s a purchase of an asset. It is distinct from a loan because there is no loan amount or interest rate, but rather a discount rate or fee against the invoice.
“Factoring is the sale of a company’s accounts receivable invoices to a factor in order to obtain working capital.”
Non-Recourse, Full Notification Factoring: We offer “full notification, non-recourse factoring,” which means:
Non-Recourse: Factor assumes the credit risk of non-payment by the client’s customers. The client is not responsible for repaying the advance if a customer doesn’t pay due to credit issues (bankruptcy, etc.) . However, clients remain responsible if customers don’t pay due to issues with the goods or services provided to the customer, often referred to as a “performance guarantee” or “validity guarantee”.
“With non-recourse, the factor takes on the customer’s credit risk (their inability to pay), but the client remains responsible for most other discounts or deductions their customer may take on an invoice.”
Full Notification: The client’s customers are notified to pay Factor directly and invoices will usually include instructions for the customer to pay directly to the factor. This allows for greater control over the flow of cash and is often used for businesses with weaker financial conditions.
“A notification factor is one that will contact each of a client’s customers and instruct them to make payments to the factoring company. Each invoice issued will usually include instructions that payments must be made payable to the factor.”
Client Profile: Versant targets a broad range of businesses, particularly:
Small to medium-sized companies with annual revenues between $1 million to $50 million.
Companies that need quick access to working capital and can’t wait for slow-paying customers.
Businesses with limited access to traditional credit (startups, fast-growing companies, seasonal businesses, those with poor credit or losses).
Businesses with credit-worthy customers, typically large corporations, municipalities or government agencies.
“The success of nearly every business is dependent on its supply chain. Whether it is a neighborhood restaurant securing fresh produce from local farmers market or a time-sensitive, month or a high-tech manufacturer procuring microchips from Asia often depends on reliable sources of supply. “
Use of Factoring Funds: Factoring can be used for various purposes, including:
Project Financing
Business Growth Financing
Business Acquisition Financing
Bridge Financing
Financing Working Capital Needs
Realization of Supplier Discounts
Preparation for High Season
Crisis Management
Debtor-In-Possession (DIP) Financing
Program Details:
Factoring Volume: We handle annual factoring volumes from $1 million to $120 million, with monthly transaction sizes ranging from $100,000 to $10 million.
Advance Rate: Factor typically advances up to 75% of the face value of approved receivables. The remaining balance (less fees) is paid when the receivable is collected.
“Client is typically advanced 75% of face value of approved receivables in the batch. The balance is paid when the receivable is collected and the batch is fully closed.”
Fees/Rates: Factoring fee is generally 1.5%-2.5% of the face value of the purchased invoices for each month that the account receivable is outstanding. There are no other fees charged on dollars outstanding or for the facility. Fees can vary depending on client risk profile.
“Factoring fee is typically 2.5% of the face value of the purchased invoices for each month that the account receivable is outstanding.”
Factoring Term: Factoring agreements typically range from 1 to 24 months, with some clients renewing.
Personal Guarantee: None is required, as Factor assumes credit risk on the invoice with the previously mentioned “performance guarantee.”
Audit Requirements: None is required of the client’s financial performance, as Factor focuses on the credit quality of their customer base.
Closing Time: Funding can occur as quickly as one week from the initial contact to funding, and often within 3-5 business days of the initial referral.
Competitive Advantage:
Focus on Difficult Deals: Versant specializes in deals other factors might avoid, including those with poor financial performance, limited credit history, or new companies.
Speed: Can fund quickly, often within a week of initial contact, and funding typically occurs on the same day that accounts receivable invoices are received.
Personal Service: Each client is assigned a dedicated Account Executive.
Technological Advantage: We provide clients with access to web-based reports to monitor the performance of their accounts receivable.
“Online platform (FactorSQL Software) enables clients to review reports and determine if/when it’s economical to close out aged receivables “batches.”” Factoring Program Overview – A Primer
Marketing and Business Development:
We focus on educating financial professionals (bankers, brokers, CPAs, attorneys, business coaches) about factoring to increase referrals.
“All my efforts are getting in front of, and speaking with, bankers, attorneys, consultants and coaches, and all those people that help small businesses get through their challenges, so that when one of their challenges could be met by factoring they can recommend what I do,” Lehnes says.”
They aim to build a large network of referral sources.
They see value in being a “bridge” to help businesses grow, become profitable, and eventually obtain traditional bank financing.
“Sometimes they’ll renew with us and stick around a little longer, but we fully acknowledge that we’re a bridge. We’re a way to get a business to the next step of their evolution, where they’re stable enough to get bank financing, or they’re large enough to go out and raise equity, or just that they’re profitable and can move on to a cheaper form of financing.””
Process Steps
The process is a multi-step process that includes:
Initiation: The process begins with identifying a prospect who has accounts receivable that may benefit from factoring. The referral source then hands off the completed request with the necessary documentation (Accounts Receivable Aging, Intake Checklist) to Versant.
Application Review and Legal Documentation: The client submits a signed proposal letter, a signed application, and a non-refundable fee. Versant then prepares a factoring agreement and associated documents, which the client then signs.
Underwriting: Versant conducts a review process by reviewing the Accounts Receivable Aging, conducting public record searches for liens and UCC filings, reviewing customer credit, verifying the receivables by calling the customers, creating a purchase and sale agreement, taking a 100% security interest on client assets, and filing a UCC notice. Invoices will be mailed to debtors with assignment stickers and customers will be notified.
Closing and Funding: Versant purchases the receivables, typically advancing 75% of the face value and assuming responsibility for collection.
Closing of Batches: When all payments for a particular batch are received, Versant pays the balance owed (the difference between what was collected and the 75% advanced) to the client, less their factoring fees.
Ongoing Flow of Receivables: After the client is set up, Versant continually purchases new invoices based on the terms of the agreement.
Factoring’s Role in Economic Uncertainty:
In times of economic uncertainty when traditional lending standards tighten and businesses have reduced cash flow, factoring can be a better option than a traditional bank loan.
“This economic uncertainty will likely continue for some time and cause many traditional lenders to restrict credit to small businesses in an effort to shield their institutions from the impact of a softening economy.”
Important Considerations: Factoring Program Overview – A Primer
Terminology: It’s crucial to understand the differences between lending and factoring terminology (e.g., “loan” vs. “factoring facility,” “borrower” vs. “client/seller”).
Fee Structure: Factoring fees are not interest rates; they are a discount or fee on the invoice amount, generally based on the time the receivable remains outstanding.
Cost vs. Benefit: While factoring can be more expensive than traditional bank loans, it provides critical access to capital, particularly when bank credit is unavailable and can improve a business’s profitability.
Not a “Last Resort”: Factoring is a widely used financial tool, not just an option for troubled companies.
Conclusion: Factoring Program Overview – A Primer
Factoring offers a valuable service for businesses needing flexible and fast access to working capital. Their focus on non-recourse, full-notification factoring, combined with a client-centric approach, positions them as a strong alternative to traditional lenders, particularly in times of economic uncertainty. Their model provides a way for businesses to operate when they do not qualify for traditional loans or need an alternative to banks. Their emphasis on education and partnerships with intermediaries has been crucial to growing their business. Factoring Program Overview – A Primer
Instructions: Answer the following questions in 2-3 sentences each.
What is the core function of factoring, and how does it provide working capital for businesses?
Describe the difference between recourse and non-recourse factoring, and what impact does it have on risk for the client and the factor?
How do notification and non-notification factoring differ, and which method is more commonly associated with businesses in weaker financial condition?
What are some common reasons a business might choose to use a factoring facility?
What is Versant’s typical advance rate, and what happens with the remaining percentage of the invoice when it’s paid?
What is Versant’s typical factoring fee structure?
What are the key differences in Versant’s approach compared to other factoring companies?
What types of businesses are a good fit for factoring with Versant Funding?
What are the steps Versant takes when underwriting a potential new client?
What are two industries Versant does not typically factor?
Factoring Study Guide – A Primer
Answer Key
Factoring is the sale of a company’s accounts receivable to a third party (the factor) in order to obtain immediate working capital. This provides businesses with cash flow by turning their invoices into cash, rather than waiting for customer payments.
In recourse factoring, the client is responsible for repaying the advance if their customer does not pay. In non-recourse factoring, the factor assumes the credit risk of non-payment. Non-recourse factoring generally allows businesses in weaker financial situations to be accommodated.
Notification factoring means the client’s customers are notified to pay the factor directly, often with instructions on the invoice. Non-notification factoring allows payments to be made to the client through a lockbox controlled by the factor. Notification factoring is generally better suited for businesses in weaker financial condition.
Businesses might use factoring for project financing, business growth, acquisition financing, bridge financing, meeting working capital needs, taking advantage of supplier discounts, navigating a crisis, or as debtor-in-possession financing.
Versant typically advances up to 75% of the face value of approved receivables. The remaining 25% of the invoice, minus fees, is paid to the client when the receivable is collected.
Versant’s fee is typically 2.5% of the invoice amount for each month (or portion thereof) the receivable is outstanding.
Versant focuses on larger and more complex deals, provides fast service (funding within a week), and assigns an Account Executive to each client. They focus more on the credit quality of the client’s customers, and less on the overall financial strength of the business itself.
Versant is suitable for small to medium-sized businesses with $1-$50 million in annual revenue that need liquidity and may not qualify for traditional bank financing, particularly those with strong customers, even with a weak financial history.
Versant reviews client’s accounts receivable aging, performs a public records search for UCC filings and liens, conducts a credit review of client’s customers, and verifies receivables by calling customers directly.
Versant does not typically factor for the medical and construction industries.
Essay Questions
Factoring Study Guide – A Primer
Instructions: Write a well-organized essay for each question. Your essays should demonstrate your understanding of factoring concepts and your ability to connect these concepts to the source materials.
Discuss the role of factoring as a financing tool for small to medium-sized businesses, comparing and contrasting it with traditional bank financing. Consider factors such as eligibility criteria, speed of funding, and cost.
Explain the benefits of a non-recourse, full-notification factoring facility for a business that is experiencing financial difficulties and how this model operates from initial referral to final payment of the factored invoices.
Analyze the competitive landscape of the factoring industry, discussing the differences between smaller and larger factors and Versant’s unique positioning within that landscape.
Chris Lehnes emphasizes the importance of educating financial intermediaries rather than business owners about factoring. Discuss the reasoning behind this marketing strategy and how it contributes to Versant’s success.
Assess how Versant’s factoring product and approach has proven beneficial for businesses facing various challenging scenarios (including the impacts of COVID-19) and the impact it has on improving their overall profitability.
