Chris Lehnes Factoring Specialist

203-664-1535 | clehnes@chrislehnes.com

Start-ups – New Podcast: Factoring – A Funding Source

Posted on February 26, 2025 by Chris Lehnes

New Podcast Episode: Factoring – A Funding Source for Start-ups.

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.

Contact Factoring Specialist, Chris Lehnes – 203-664-1535 | clehnes@chrislehnes.com

How Small Businesses Succeed with Factoring in 2025

Posted on February 24, 2025 by Chris Lehnes

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.

How Accounts Receivable Factoring Can Help Your Small Business Thrive

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.

Contact Factoring Specialist Chris Lehnes to learn if your client is a fit

Chris Lehnes | 203-664-1535 | clehnes@chrislehnes.com

New Podcast Episode – Factoring – A Non-Recourse Financing Alternative

Posted on February 24, 2025 by Chris Lehnes

New Podcast Episode – Factoring – A Non-Recourse Financing Alternative

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)

Contact Factoring Specialist, Chris Lehnes to learn if your client is a fit.

New Podcast Episode: Factoring – Help Your Clients Help Themselves

Posted on February 3, 2025 by Chris Lehnes

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.

Contact Factoring Specialist, Chris Lehnes

Factoring Program Overview – A Primer

Posted on January 29, 2025 by Chris Lehnes

Factoring Program Overview – A Primer

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

**Compiled with AI Assistance

Contact me to learn if your client is a fit:

203-664-1535

clehnes@chrislehnes.com

Request a proposal

Factoring Study Guide – A Primer

Posted on January 29, 2025 by Chris Lehnes

Factoring Study Guide – A Primer

Quiz

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.

Factoring Study Guide – A Primer

New Podcast Episode – Factoring – A Vital Source of Capital for Small Businesses

Posted on January 29, 2025 by Chris Lehnes

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:

**podcast created with AI Assistance (https://notebooklm.google)

Contact me to learn if your client is a factoring fit:

203-664-1535

clehnes@chrislehnes.com

Factoring Study Guide

Quiz

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

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.”

Funding for Working Capital Shortfalls

Posted on December 18, 2024 by Chris Lehnes

Funding for Working Capital Shortfalls

Our accounts receivable factoring program can help businesses meet payroll or other essential obligations in as quick as a week.

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.

Chris Lehnes 203-664-1535 clehnes@chrislehnes.com

Inflation hits 2.7% Amid Stubborn Price Pressures

Posted on December 11, 2024 by Chris Lehnes

The U.S. inflation rate has climbed to 2.7%, marking a slight uptick after months of gradual declines. The increase in the Consumer Price Index (CPI) signals persistent challenges in taming it, which remains above the Federal Reserve’s target of 2%. The latest data indicates that while progress has been made, some key areas continue to exert upward pressure on prices.

Inflation hits 2.7% Amid Stubborn Price Pressures

Factors Driving Inflation

The recent rise to 2.7% comes after the inflation rate held at 2.6% in previous months. Contributing factors include:

Shelter Costs: Housing-related prices remain elevated, with shelter costs increasing by 4.9% year-over-year. Shelter accounts for a significant portion of the overall CPI, making it a critical driver of inflation.
Energy Prices: Although energy prices had been declining earlier in the year, the recent report shows a slower decline. Gasoline prices, for example, fell by 12.2%, compared to a sharper 15.3% drop in prior months.
Core Services: Prices for core services, excluding food and energy, remain sticky. Transportation and medical services costs continue to rise, keeping core inflation at 3.3%.
Food Prices: The rate for food showed some moderation, easing to 2.1% from 2.3%. However, certain grocery staples continue to see price increases.

Federal Reserve’s Challenge

The Federal Reserve’s goal is to achieve a 2% rate, using the Personal Consumption Expenditures (PCE) deflator as its preferred measure. The PCE typically runs lower than the CPI, but with current CPI inflation at 2.7%, the Fed faces a delicate balancing act. While the central bank has paused interest rate hikes in recent months, a sustained increase in inflation may force policymakers to reconsider their stance.

Fed Chair Jerome Powell has indicated that the path to 2% inflation could be bumpy, especially with stubborn pressures in services and housing sectors. The upcoming Fed policy meeting will be closely watched to see if this latest inflation data influences any shift in interest rate policies.

inflation Outlook for Consumers

For American consumers, this inflationary environment means that the cost of living remains elevated, particularly in essential areas like housing, transportation, and healthcare. While wage growth has helped offset some inflationary pressures, purchasing power continues to be strained for many households.

Conclusion

As U.S. inflation hits 2.7%, the challenge of fully containing inflation persists. Whether this trend continues or moderates will depend on several factors, including energy markets, supply chain stability, and the housing sector. The Federal Reserve’s response in the coming months will be crucial in determining the trajectory and economic stability.

Contact Factoring Specialist, Chris Lehnes

Factoring Activity – Deal Alerts – Q4 2024

Posted on November 15, 2024 by Chris Lehnes

Advantages of Accounts Receivable Factoring in Q4 2024

Accounts receivable factoring has long been a strategic financing tool for businesses seeking to improve cash flow and support operational growth. As we approach Q4 2024, the relevance of factoring remains strong due to economic trends, supply chain dynamics, and evolving market demands. Here are the primary advantages of factoring in the current climate:

1. Immediate Access to Cash Flow

Accounts receivable factoring allows businesses to convert outstanding invoices into cash almost immediately, bypassing the usual 30-90 day payment terms. This liquidity is particularly valuable in Q4, as companies often face increased demand, seasonal expenses, or year-end financial obligations.

Factoring Activity - Deal Alerts - Q4 2024 - Accounts receivable factoring has long been a strategic financing tool for businesses seeking to improve cash flow.

2. Flexible and Accessible Financing

Unlike traditional loans, factoring does not require a lengthy approval process or stringent credit checks. Instead, funding is based on the creditworthiness of the business’s customers. This makes factoring an attractive option for small and medium-sized enterprises (SMEs) or companies with limited credit history.

3. Support for Supply Chain Stability

With supply chain challenges persisting in many industries, businesses may need to pay suppliers upfront to secure inventory. Factoring bridges the gap, ensuring companies can meet supplier demands without disrupting operations.

4. No Additional Debt

Factoring is not a loan, so businesses do not accumulate debt or face repayment schedules. This is particularly advantageous for companies aiming to maintain a clean balance sheet and optimize their creditworthiness as they plan for the year ahead.

5. Enhanced Focus on Core Operations

By outsourcing invoice management to a factoring company, businesses save time and resources on collections. This allows them to concentrate on growth-oriented activities, such as expanding customer bases, improving products, or streamlining operations.

6. Tailored to Economic Conditions

In Q4 2024, global economic uncertainty continues to shape business environments. Factoring offers an adaptable solution for companies managing fluctuating revenues, ensuring they remain agile in responding to market changes.

7. Strengthened Customer Relationships

Factoring companies often handle collections professionally, reducing tension between businesses and their customers. This preserves positive relationships and supports long-term partnerships. Factoring Activity – Deal Alerts – Q4 2024.

Why Factoring is Crucial in Q4 2024

As businesses navigate the complexities of Q4 2024, including seasonal fluctuations, economic shifts, and competitive pressures, factoring offers a reliable, scalable solution. Whether used as a short-term financing strategy or integrated into long-term financial planning, accounts receivable factoring empowers businesses to seize opportunities and close the year on a strong financial note. Factoring Activity – Deal Alerts – Q4 2024.