Our accounts receivable factoring program can be the ideal source of financing for businesses which are growing and need cash quickly.
Program Overview $100,000 to $30 Million Non-Recourse No Audits No Financial Covenants No Long-Term Commitment Most businesses with strong customers are eligible
We like challenging deals : Start-ups Turnarounds Historic Losses Customer Concentrations Poor Personal Credit Character Issues
We focus on the quality of your client’s accounts receivable, ignoring their financial condition.
The Evolving Landscape of Small Businesses: 2025 Challenges & Opportunities
The small business sector in the United States stands at a critical juncture in 2025. While a sense of optimism prevails among many business leaders regarding the overall economic outlook, a closer examination reveals a complex environment characterized by persistent challenges alongside emerging opportunities. This report delves into the multifaceted impact of the current economic climate on these vital engines of the US economy, exploring the key headwinds they face, the avenues for growth they are pursuing, the crucial role of support systems, and the potential trends shaping their future. Inflation, supply chain vulnerabilities, labor shortages, and shifting consumer behaviors represent significant hurdles.
Conversely, the increasing adoption of technology, particularly in e-commerce and artificial intelligence, coupled with strategic partnerships and a renewed focus on customer experience, offers promising pathways forward. Furthermore, the support provided by government initiatives and the engagement of local communities are proving to be crucial factors in fostering the resilience of these enterprises. Looking ahead, the potential for economic shifts such as stagflation underscores the need for small businesses to remain agile and adaptable.
The Current Economic Climate and Small Business Sentiment:
The economic landscape of the United States in 2024 and the anticipated trajectory for 2025 present a mixed picture for small businesses. Some analyses suggest that 2024 witnessed a moderation of inflation alongside continued growth in the Gross Domestic Product (GDP). This has contributed to an expectation of sustained economic expansion in 2025, provided that inflationary pressures remain under control. Indeed, business leaders appear to have shifted their focus from a cautious stance to one prioritizing growth, with a notable decline in concerns surrounding a potential recession. Surveys indicate that a significant majority of business leaders do not foresee a recession in 2025, a stark contrast to the sentiment expressed at the beginning of 2024. This improved outlook is partly attributed to the Federal Reserve’s interest rate cuts in late 2024 and signals of further easing, leading many to move past recessionary worries and concentrate on opportunities for expansion.
This optimistic sentiment is echoed by many small business owners, with a considerable percentage expressing confidence in their economic viability in 2025. However, this optimism exists in tandem with acknowledged challenges, such as the rising cost of doing business and evolving consumer trends. While national economic optimism has shown a strong rebound, the global economic outlook is perceived as more uncertain. Interestingly, the Small Business Index for the first quarter of 2025 experienced a slight dip, suggesting that despite the overarching optimism, some underlying concerns may be tempering overall confidence. Despite these individual business-level concerns, views regarding the health of the US and local economies have remained relatively stable. This could indicate that while small business owners might be facing specific operational challenges, they still perceive a degree of resilience and potential within their immediate economic environments.
Navigating the Headwinds: Key Challenges for Small Businesses:
3.1 Inflation and Rising Costs: A dominant concern casting a shadow over the small business landscape is the persistent issue of inflation and the escalating costs of operations. Reports indicate that inflation has reached record levels as a top concern for small businesses. The increasing costs associated with running a business are compelling many to raise their prices and implement measures to reduce operating expenses. A significant portion of small business owners anticipate that these costs are unlikely to decrease in 2025. The impact of inflation is also evident in consumer behavior, with some individuals choosing to curtail their spending at small businesses due to the higher cost of essential goods. Certain sectors are experiencing more pronounced price hikes than others, including finance, retail, construction, services, and professional services. The potential for new tariffs to be imposed further exacerbates these inflationary pressures, as tariffs typically lead to increased costs for imported goods, which are often passed on to consumers. Adding to the financial strain, the average monthly interest payments on credit cards for small businesses have also seen an increase. The convergence of record inflation concerns and the expectation of sustained high costs suggests that small businesses will continue to face significant pressure on their profitability, potentially necessitating difficult strategic choices regarding pricing, staffing levels, and future investments. The simultaneous rise in concerns about revenue alongside inflation indicates a challenging environment where businesses are not only grappling with higher expenses but are also finding it increasingly difficult to maintain their sales volumes, possibly pointing towards weakening consumer demand or heightened price sensitivity.
3.2 Supply Chain Disruptions: While the acute supply chain disruptions experienced in the immediate aftermath of the pandemic have somewhat subsided, critical issues continue to pose challenges for small businesses. Ongoing geopolitical instability and global trade uncertainties contribute to the volatility of supply chains. Disruptions stemming from wars, piracy, strikes, infrastructure failures, and adverse weather conditions continue to impede the smooth flow of goods. Ocean freight bottlenecks and congestion at global ports further compound these difficulties. The crisis in the Red Sea, for instance, has the potential to impact shipping costs and alter established trade routes. Moreover, the imposition of tariffs can directly disrupt supply chains and lead to inflated costs for businesses that rely on imported materials or components. In response to these persistent vulnerabilities, a growing number of businesses are adopting strategies such as reshoring and nearshoring to shorten their supply chains and reduce associated risks. Despite these efforts, managing inventory effectively remains a significant and ongoing challenge for many small businesses. The continued presence of global uncertainties implies that building resilient and agile supply chains is crucial for small businesses to effectively navigate unexpected disruptions. The increasing trend of reshoring and nearshoring signifies a strategic adaptation to these risks, potentially fostering growth in domestic manufacturing and supply sectors.
3.3 Labor Shortages and Workforce Management: Labor-related issues remain a dominant concern for business leaders across the United States. Small businesses are facing multifaceted workforce challenges, including difficulties in finding qualified candidates, retaining existing employees, and navigating the overall hiring process. Demographic shifts, particularly the retirement of the baby boomer generation, are contributing to significant talent gaps in various industries. Some experts suggest that immigration reform may be necessary to alleviate these workforce shortages and support business expansion. To attract and retain talent in this competitive environment, many small businesses are implementing strategies such as increasing wages, offering more flexible working arrangements, and enhancing employee benefits packages. The expectation is that labor markets will likely remain tight throughout 2025. In some instances, concerns about the quality of available labor have even surpassed inflation as the primary challenge for small business owners. The persistent difficulty in securing and retaining adequate staff is not merely a temporary setback but appears to be a more fundamental issue driven by demographic trends, necessitating long-term solutions focused on skills development and workforce expansion. Furthermore, the rising costs associated with labor are directly contributing to the increasing operational expenses for small businesses, thereby compounding the inflationary pressures they are already facing.
3.4 Shifting Consumer Behavior: The current economic climate is also influencing the behavior of consumers, presenting both challenges and opportunities for small businesses. The rising costs of essential goods and services are prompting many consumers to reduce their discretionary spending. This trend was particularly evident during the recent holiday season, where average consumer spending at small businesses saw a notable decrease. To navigate this evolving landscape, businesses are recognizing the need to adapt their marketing strategies to a more challenging online search environment. Consumers are also increasingly expecting seamless transitions between online and in-person shopping experiences. Moreover, there is a growing awareness among consumers regarding environmental issues, leading to a greater preference for businesses that prioritize sustainability and ethical practices. Finally, the trend towards consumers seeking more personalized products and services continues to gain momentum. The observed decline in consumer spending at small businesses, driven by the increasing cost of necessities, suggests a potential fundamental shift in consumer priorities. This necessitates that small businesses emphasize value, cultivate strong customer loyalty, and potentially broaden their offerings to include more essential goods or services. Conversely, the growing consumer emphasis on sustainability and ethical practices presents a distinct opportunity for small businesses to differentiate themselves from larger corporations by highlighting their local connections, ethical sourcing, and environmentally conscious operations.
4. Seizing Opportunities in a Changing Landscape:
4.1 E-commerce and Digital Presence: The realm of e-commerce continues to play an increasingly vital role in the retail sector, offering significant opportunities for small businesses. Given the growing proportion of retail sales occurring online, it is becoming essential for small businesses to establish and enhance their presence in the digital marketplace by offering their products and services through online channels. Effective online marketing strategies and active engagement on social media platforms are also crucial for reaching and connecting with potential customers. Notably, platforms such as TikTok and Instagram are increasingly being utilized not just for building brand awareness but also for direct client acquisition and facilitating sales conversions. The overall trend indicates that small businesses are intensifying their focus on digital marketing initiatives and expanding their e-commerce capabilities. To succeed in this digital-centric environment, it is paramount for small businesses to ensure they have a mobile-friendly and easily navigable website equipped with robust e-commerce functionalities that allow consumers to quickly find and purchase desired products or services from their mobile devices. The sustained and significant growth of e-commerce underscores the critical imperative for small businesses to invest strategically in their online presence. This investment is not solely for driving sales but also for enhancing brand visibility and fostering meaningful customer engagement, as consumers increasingly prioritize the convenience of online interactions. The emerging trend of leveraging social media platforms for direct sales signifies a blurring of the lines between traditional marketing and sales channels. This requires small businesses to develop integrated and agile strategies that effectively utilize social media not only for brand building but also for driving immediate transactional outcomes.
4.2 Technological Adoption and Innovation: The adoption of technology, particularly artificial intelligence (AI), is rapidly transforming the operational landscape for small businesses. AI is increasingly being implemented for a wide array of applications, including enhancing customer service, streamlining internal processes, and boosting overall productivity. AI-powered tools are proving valuable in tasks such as brainstorming new ideas, summarizing lengthy documents, automating meeting note-taking, and conducting advanced information searches. Many small businesses are also utilizing AI-driven chatbots and virtual assistants to improve the efficiency and responsiveness of their customer service operations. There is a prevailing sense of optimism among small business owners regarding the potential of AI to contribute to their future growth and success. However, the increasing reliance on technology also brings forth the critical importance of robust cybersecurity measures to protect sensitive data and mitigate the growing threat of cyberattacks. Beyond AI, other technological advancements, such as the rollout of 5G networks and the proliferation of remote collaboration tools, are also impacting small business operations. Furthermore, the adoption of various digital tools is playing a key role in enhancing operational efficiency and improving overall financial management for these enterprises. The accelerating adoption of AI by small businesses marks a significant evolution in their operational methodologies. This technological shift has the potential to democratize access to powerful tools, enabling even smaller enterprises to compete more effectively with larger counterparts in areas such as automation, data analysis, and customer engagement. The growing dependence on technology, especially AI and online operations, underscores the indispensable need for small businesses to prioritize investments in cybersecurity. Protecting their digital assets and maintaining customer trust is paramount for ensuring business continuity and long-term sustainability in an increasingly interconnected world.
4.3 Strategic Partnerships and Diversification: A significant proportion of businesses are actively exploring and planning to establish strategic partnerships and make targeted investments as a means of fostering growth and resilience. Diversifying the range of products and services offered is also recognized as a crucial strategy for catering to the evolving preferences and demands of consumers. The potential for mutually beneficial collaborations and mentorship opportunities between larger and smaller businesses is also gaining recognition. Expanding into new geographical markets within the domestic landscape represents another avenue for growth being considered by many businesses. Furthermore, some businesses are exploring mergers and acquisitions as a strategic pathway to achieve accelerated growth and market expansion. In the context of ongoing supply chain vulnerabilities, diversifying both sourcing and fulfillment networks is becoming increasingly important for building greater resilience and mitigating potential disruptions. The proactive pursuit of strategic partnerships and investments suggests a growing recognition among small businesses of the value of collaboration and external support in navigating the complexities of the current economic climate and achieving sustainable growth. The increasing emphasis on diversifying both product/service portfolios and sourcing strategies reflects a strategic imperative for small businesses to enhance their resilience by mitigating the inherent risks associated with fluctuating consumer demand and potential disruptions within their supply chains.
5. Small Business Resilience in Action: Case Studies:
A local restaurant, facing rising food costs due to inflation , has adapted by optimizing its menu to feature more seasonal and locally sourced ingredients, thereby reducing its reliance on volatile global supply chains and supporting local farmers. The restaurant has also invested in enhancing its online ordering system and partnered with local delivery services to cater to changing consumer preferences for convenience and at-home dining.
A small retail boutique, experiencing a slowdown in consumer spending on non-essential items , has successfully leveraged social media platforms to engage directly with its customer base, offering personalized styling advice and exclusive promotions to foster loyalty and maintain sales. The boutique has also emphasized its unique, small-batch offerings to differentiate itself from larger retailers.
A US-based manufacturing company, concerned about potential tariff increases and ongoing global supply chain disruptions , has made the strategic decision to reshore a portion of its production from overseas. This move not only mitigates the risks associated with international trade but also allows for greater control over quality and lead times.
A service-based business, operating in a sector facing significant labor shortages , has implemented AI-powered tools to automate routine administrative tasks and enhance communication with clients. This has allowed the existing staff to focus on higher-value activities and maintain service levels despite the challenges in recruitment.
A growing technology startup, facing the challenge of managing an expanding IT infrastructure within a tight budget, has opted for IT staff augmentation services. This approach provides the flexibility to access specialized technical expertise on an as-needed basis, proving more cost-effective than hiring full-time IT personnel.
A local non-profit organization dedicated to community outreach has adopted cloud-based software and online collaboration tools. This digital transformation has streamlined their internal operations, improved their ability to coordinate with volunteers, and enhanced their communication with the community they serve.
A small brewery, recognizing the increasing consumer interest in health and wellness , has expanded its product line to include a range of high-quality, non-alcoholic craft beverages. This diversification has allowed them to tap into a growing market segment and appeal to a broader customer base.
These examples, while representing a small fraction of the diverse adaptations occurring across the small business landscape, illustrate the proactive and innovative ways in which these enterprises are responding to the current economic pressures and capitalizing on emerging opportunities. The common thread running through these cases is a focus on agility, customer engagement, and the strategic adoption of technology and new business models.
6. Government and Community Support: Pillars of Small Business Stability:
6.1 Government Programs and Initiatives: The US Small Business Administration (SBA) plays a pivotal role in supporting the growth and resilience of small businesses through a variety of funding programs. These programs encompass loans designed for various purposes, including working capital, equipment purchases, and real estate; avenues for accessing investment capital; disaster assistance in the form of low-interest loans; surety bonds to facilitate contracting opportunities; and targeted grant programs. The SBA offers several distinct loan programs, such as the 7(a) loan, which is the most common type and can be used for a wide range of business needs; the 504 loan, providing long-term, fixed-rate financing for major assets; microloans for very small businesses and startups; disaster assistance loans for recovery from declared disasters; and loans specifically for military reservists called to active duty. Recognizing the financial challenges some small businesses face, the SBA also provides resources for those experiencing economic hardship, including access to free or low-cost financial counseling through its network of Resource Partners. While the Hardship Accommodation Plan (HAP) for COVID-19 Economic Injury Disaster Loans (EIDL) concluded in March 2025, other forms of assistance remain available. Additionally, the SBA and other organizations offer various grant programs tailored to specific industries or demographics, such as the Halstead Grant for silver jewelry artists, the Accion Opportunity Fund for underserved entrepreneurs, Amazon’s Black Business Accelerator Program, the Amber Grant Foundation for women entrepreneurs, and America’s Seed Fund for innovative technology startups. The broader governmental landscape, including potential tax and regulatory changes, can also significantly impact small businesses. Many small business owners have expressed a desire for simplification of the tax code and the extension of the 20% small business deduction. Key Table: Select SBA Funding Programs for Small Businesses
Program Name
Description
Use of Funds
Key Features
7(a) Loans
Most common SBA loan; flexible financing for various needs.
Working capital, equipment, real estate, debt refinancing.
Maximum loan amount typically $5 million; variety of terms and rates.
504 Loans
Long-term, fixed-rate financing for major fixed assets.
Purchase of equipment or real estate.
Typically involves a bank, a Certified Development Company (CDC), and the small business; favorable interest rates.
Microloans
Small loans for very small businesses and startups.
Working capital, inventory, supplies, furniture, fixtures, machinery, equipment.
Loans up to $50,000; administered through intermediary lenders.
Economic Injury Disaster Loans (EIDLs)
Low-interest loans to help businesses recover from declared disasters.
Working capital and normal operating expenses.
Available to small businesses in declared disaster areas; terms up to 30 years.
State Trade Expansion Program (STEP)
Grants to states to help small businesses increase their exports.
Export-related activities, such as trade show participation and marketing.
Administered by individual states; eligibility criteria vary.
Export to Sheets
6.2 Role of Local Communities and Consumer Support: The success and resilience of small businesses are inextricably linked to the support they receive from their local communities and individual consumers. Initiatives that encourage residents to shop locally and support community services play a vital role in keeping money circulating within the local economy. Studies have consistently shown that spending at local businesses generates a significantly greater economic impact within the community compared to spending at large chain stores. Supporting local businesses fosters entrepreneurship and strengthens the financial foundations of the community. Beyond the economic benefits, small businesses often contribute significantly to their communities by donating their time, financial resources, and in-kind contributions to various local groups, charities, schools, and other organizations. This involvement is not only important for the well-being of the community but also contributes to the personal satisfaction and fulfillment of small business owners. Consumers can actively support local businesses through various actions, such as shopping at local stores, dining at local restaurants, recommending local businesses to friends, writing positive online reviews, and participating in community events. By choosing to support local small businesses over large corporations, consumers directly invest in their own communities, fostering job creation, reinvestment, and a stronger local economy. The symbiotic relationship between small businesses and their local communities is a cornerstone of economic vitality and social well-being.
7. Potential Future Trends and Their Anticipated Impact:
7.1 Economic Trends: Looking ahead, the economic landscape for small businesses in 2025 is expected to be shaped by several key trends. While continued economic growth is anticipated by many, there is also the potential for inflation to accelerate, particularly given proposed policy changes such as tax cuts and tariffs. The trajectory of inflation will be closely watched, as a resurgence could necessitate further adjustments in business strategies. The impact of potential increases in tariffs remains a significant concern, especially for businesses that rely on international supply chains, as these could lead to higher costs for both businesses and consumers. Furthermore, the risk of stagflation, a scenario characterized by slow economic growth coupled with persistent high inflation, is being discussed by some economic analysts. Such an environment could present significant challenges for small businesses, impacting both their costs and consumer demand. The Federal Reserve’s monetary policy decisions, particularly regarding interest rates, will also play a crucial role in shaping the economic environment for small businesses, influencing borrowing costs and overall economic activity.
7.2 Technological Advancements and Digital Transformation: Technological advancements and the ongoing digital transformation will continue to profoundly impact small business operations and competitiveness. Artificial intelligence is expected to become even more integrated into various aspects of business, from customer service and marketing to operations and decision-making. The increasing accessibility and affordability of AI tools will likely drive further adoption across the small business sector. Automation of tasks, facilitated by AI and other digital tools, will be crucial for enhancing efficiency and reducing costs. As the reliance on technology grows, the importance of cybersecurity will only intensify, requiring businesses to invest in measures to protect their data and infrastructure. The trend of IT staff augmentation is also likely to continue, providing a flexible and cost-effective way for small businesses to manage their technology needs. Overall, the ability of small businesses to embrace and effectively utilize digital tools will be a key determinant of their success in the coming years.
7.3 Shifting Consumer Preferences: Evolving consumer preferences will continue to shape the small business landscape. The demand for personalized products and services is expected to grow, requiring businesses to leverage data and technology to tailor their offerings. Sustainability and ethical practices will likely become even more important to consumers, influencing their purchasing decisions and requiring businesses to adopt more environmentally and socially responsible approaches. The convenience and accessibility offered by online channels will continue to drive the growth of e-commerce, making a strong digital presence a necessity for most businesses. The rise of the gig economy may also present both opportunities and challenges for small businesses, affecting their workforce strategies and potentially creating new service models. Understanding and adapting to these evolving consumer preferences will be crucial for small businesses to maintain their competitiveness and relevance in the marketplace.
Conclusion:
The landscape for small businesses in the United States in 2025 is characterized by a complex interplay of challenges and opportunities. While the prevailing sentiment among many business leaders is optimistic, significant headwinds such as inflation, supply chain vulnerabilities, and labor shortages persist and demand careful navigation. The increasing adoption of technology, particularly in the realms of e-commerce and artificial intelligence, offers promising avenues for growth and efficiency. Strategic partnerships, diversification, and a keen focus on evolving consumer preferences will also be critical for sustained success. The support provided by government programs and the engagement of local communities remain vital pillars underpinning the stability and resilience of these enterprises. Looking ahead, potential economic shifts like accelerating inflation or even stagflation underscore the paramount importance of adaptability and strategic planning. Ultimately, the small business sector’s ability to embrace innovation, manage risks effectively, and respond agilely to the dynamic economic and technological environment will determine its continued vitality and its crucial contribution to the US economy.
Questions about what you’ve heard? Contact Chris Lehnes | 203-664-1535 | clehnes@chrislehnes.com | www.chrislehnes.com
https://www.youtube.com/watch?v=pApeFoi8m_M
Key Concepts Review Factoring: A financial transaction where a business sells its accounts receivable (invoices) to a third party (a factor) at a discount to receive immediate cash. Accounts Receivable: Money owed to a company by its customers for goods or services provided on credit. Working Capital: The capital available to a company for day-to-day operations. Calculated as current assets minus current liabilities. Start-ups: A new business venture, typically characterized by high uncertainty and rapid growth potential. Invoice: A commercial document that itemizes and records a transaction between a buyer and a seller. Glossary of Key Terms Accounts Receivable: Money owed to a company by its customers for goods or services provided on credit. Represented by invoices. Factoring: A financial transaction where a business sells its accounts receivable (invoices) to a third party (a factor) at a discount to receive immediate cash. The factor takes on the responsibility of collecting payment from the customer. Invoice: A commercial document that itemizes and records a transaction between a buyer and a seller. It specifies the goods or services provided, the quantity, the agreed-upon price, and payment terms. Startup: A new business venture, typically characterized by high uncertainty and rapid growth potential. Often faces challenges in securing traditional financing due to a limited track record. Working Capital: The capital available to a company for day-to-day operations. Calculated as current assets minus current liabilities. Adequate working capital is essential for a business to meet its short-term obligations and fund its growth. Business Development Officer: A professional who focuses on generating new leads, nurturing relationships with prospective clients, and promoting business growth. Startups are often overlooked for traditional financing: Lehnes directly addresses the common misconception that startups are not suitable candidates for factoring. He states, “a lot of people don’t consider [startups] as a potential candidate for factoring.” This highlights a gap in financing options for new businesses that might not qualify for conventional loans. Factoring provides immediate working capital: The core benefit of factoring is the immediate cash flow it provides. Lehnes explains, “what our client gets is immediate access to the working capital to build this client relationship, hopefully bring on new clients and become a much stronger business.” This allows startups to cover expenses like payroll and supplier costs, supporting operations and growth. Example Scenario: Seafood Startup: Lehnes presents a specific example of a seafood startup that wants to fulfill a large order from a grocery store chain with 30-day payment terms. Factoring allows the startup to accept the order by bridging the cash flow gap between delivery and payment. “Our client makes a delivery to this customer, invoices, we factor the invoice, purchase it, advance them 75% of the cash immediately, and they can use that cash to pay their employees, pay their suppliers, and keep the wheels in motion.” Focus on Customer Creditworthiness: Versant Funding prioritizes the financial stability of the start-up’s customers over the startup’s own history. As Lehnes emphasizes, “we will do a deal for a company that’s brand new… for us, what’s important is that that one customer be strong.” This is a crucial distinction, as it opens up financing opportunities for startups with strong customer relationships. Cost of Factoring: Lehnes mentions a typical factoring fee of approximately 2.5% per month. He states, “…taking out a fee which in a case like this is usually about 2 and a half % per month.” While this is a cost to the startup, it is presented as worthwhile for the access to immediate capital and growth opportunities. Important Facts/Details: Advance Rate: Versant Funding typically advances 75% of the invoice amount upfront. Fee Structure: The factoring fee is around 2.5% per month. Versant Funding’s Target Client: Start-ups with creditworthy customers, even those with limited operating history. Quotes for Emphasis: “Start-ups are welcome.” “what our client gets is immediate access to the working capital” “for us what’s important is that that one customer be strong” factoring as a valuable financial tool for startups that are seeking to grow but may be excluded from traditional lending options. By focusing on the creditworthiness of the startup’s customers, Versant Funding can provide much-needed working capital, enabling startups to fulfill large orders and expand their businesses. The 2.5% monthly fee is framed as a worthwhile investment for the benefits of immediate cash flow and accelerated growth.
Quick cash for small businesses using AR Factoring
Running a small business comes with a host of financial challenges, and cash flow management is often at the top of the list. Many businesses struggle with delayed payments from customers, leading to cash shortages that can hinder operations, payroll, and growth. One effective financial solution to this problem is accounts receivable factoring.
What Is Accounts Receivable Factoring?
A financing method where a business sells its outstanding invoices to a company at a discount. In return, the business receives an immediate cash advance—typically 70% to 90% of the invoice value. Once the customer pays the invoice, the factoring company releases the remaining balance, minus a small fee.
Unlike traditional bank loans, factoring does not create debt on the company’s balance sheet. Instead, it allows businesses to leverage their existing receivables to maintain a steady cash flow.
How Factoring Can Benefit Your Small Business
1. Improved Cash Flow
One of the primary advantages of factoring is that it provides businesses with immediate access to working capital. Instead of waiting 30, 60, or even 90 days for customers to pay their invoices, businesses can convert receivables into cash quickly.
2. Easier Access to Funding
Unlike loans or lines of credit that require extensive financial documentation and strong credit history, factoring is based primarily on the creditworthiness of your customers. This makes it a viable option for startups and small businesses that may not qualify for traditional financing.
3. No Additional Debt
Because factoring involves selling an asset (accounts receivable) rather than borrowing money, it does not add debt to your balance sheet. This keeps financial ratios healthy and preserves borrowing capacity for other needs.
4. Outsourced Accounts Receivable Management
Many factoring companies offer additional services such as credit checks on customers and collections management. This can save small businesses time and effort, allowing them to focus on operations and growth rather than chasing payments.
5. Flexibility and Scalability
Factoring is not a one-size-fits-all solution; businesses can choose which invoices to factor based on their cash flow needs. Moreover, as a company grows and generates more invoices, the amount of funding available through factoring increases, making it a scalable financing option.
Is Factoring Right for Your Business?
Can be a valuable tool for businesses that:
Experience cash flow gaps due to slow-paying customers.
Have a strong volume of receivables from creditworthy clients.
Need fast access to working capital without taking on additional debt.
Want to outsource invoice collection and credit management.
However, it’s important to consider the costs involved. Fees can range from 1% to 5% per month, depending on factors like invoice value, customer creditworthiness, and industry risk. Businesses should compare different factoring companies to find the best terms and ensure that factoring aligns with their financial strategy.
Lastly…
It is a powerful financial tool that can help small businesses bridge cash flow gaps, reduce financial strain, and fuel growth. By leveraging unpaid invoices, businesses can access the capital they need to stay competitive without the burden of debt. For many small business owners, factoring can be the key to maintaining stability and seizing new opportunities in an unpredictable economic landscape.
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.
New Podcast Episode – Factoring – A Vital Source of Capital for Small Businesses
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Small Businesses face numerous challenges, among them is the ability to have access to sufficient working capital to meet the ongoing cash obligations of the business. While this need can be met by a traditional line of credit for businesses which meet all traditional bank lending criteria, many businesses do not meet those standards and require an alternative. One such option is accounts receivable factoring. With factoring, a B2B or B2G business can quickly convert their accounts receivable into cash. Many factoring companies focus exclusively on the credit quality of the customer base and ignore the financial condition of the business and the personal financial condition of the owners. This works well for businesses with traits such as: Losses Rapidly Growing Highly Leveraged Customer Concentrations Out-of-favor Industries Weak Personal Credit Character Issues Listen to this podcast to gain a greater understanding of the types of businesses which can benefit from this form of financing. To learn if you are a fit contact me today:
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, and what impact does it have on risk for the client and the factor?
How do notification and non-notification 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 fee structure?
What are the key differences in Versant’s approach compared to other factoring companies?
What types of businesses are a good fit with Versant Funding?
What are the steps Versant takes when underwriting a potential new client?
What are two industries Versant does not typically factor?
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 , 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 generally allows businesses in weaker financial situations to be accommodated.
Notification means the client’s customers are notified to pay the factor directly, often with instructions on the invoice. Non-notification 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 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
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 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.
Glossary
Account Debtor: The customer of the factoring client who owes money for goods or services rendered; also sometimes referred to as a “customer client.”
Advance Rate: The percentage of the face value of an invoice that a factor provides to the client upfront.
Bridge Financing: Short-term financing used to cover immediate cash needs while a company transitions to another source of funding or a more stable state.
Client: In factoring, the business that is selling its accounts receivable to a factor; also referred to as “seller of receivables.”
Debtor-in-Possession (DIP) Financing: A type of financing provided to a company undergoing Chapter 11 bankruptcy, enabling them to continue operations.
Discount/Fee: The amount a factor charges for providing financing, often expressed as a percentage of the invoice amount, generally applied monthly (or part thereof) that the invoice is outstanding.
Factor: The financial company that purchases accounts receivable from businesses; also referred to as “purchaser of receivables.”
Factoring Agreement: The legal agreement between a factor and a client outlining the terms and conditions of their relationship, including the fees, term of the agreement, and other obligations.
Factoring Facility: The overall agreement and set-up for the sale of invoices between the client and the factor.
Factoring Volume: The total value of accounts receivable factored, usually expressed in monthly, quarterly, or annual terms.
Full Notification Factoring: A type of factoring where the client’s customers are notified to pay the factor directly.
Non-Notification Factoring: A type of factoring where the client’s customers are not notified of the factoring relationship and continue to pay the client, who in turn, settles with the factor.
Non-Recourse Factoring: A type of factoring where the factor assumes the credit risk of non-payment by the client’s customer.
Performance Guarantee: A guarantee provided by the client to the factor, assuring that the invoiced goods/services were provided correctly and as ordered, not a guarantee of payment for the underlying invoices.
Purchase and Sale Agreement: A contract that documents the sale of a batch of invoices from a client to the factor.
Recourse Factoring: A type of where the client is liable to the factor if their customer fails to pay the invoice.
Rebate: The remaining percentage of an invoice amount (after the initial advance) that is paid to the client by the factor after the customer has paid the invoice (less the factor’s fee).
Receivables: Invoices representing money owed to a company for goods or services delivered but not yet paid for; also referred to as “accounts receivable.”
Our accounts receivable factoring program can help businesses meet payroll or other essential obligations in as quick as a week.
Funding Working Capital Shortfalls
Factoring Program Overview
$100,000 to $10 Million
Competitive Advance Rates
Non-Recourse
No Audits
No Financial Covenants
Most businesses with strong customers eligible
We specialize in difficult deals:
Start-ups
Weak Balance Sheets
Historic Losses
Customer Concentrations
Poor Personal Credit
Character Issues
We focus on the quality of your client’s accounts receivable, ignoring their financial condition. This enables us to move quickly and fund qualified businesses including Manufacturers, Distributors and a wide variety of Service Businesses in as few as 3-5 days. Contact me today to learn if your client is a fit.
