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New Podcast Episode: Factoring – Help Your Clients Help Themselves

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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:

  1. 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.”
  1. 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.
  1. 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.
  1. 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.”
  1. 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

New Factoring Podcast
New Factoring Podcast

Factoring Program Overview – A Primer

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Factoring Program Overview – A Primer

Factoring Program Overview
Factoring Program Overview

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

  1. 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.”
  1. 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.”
  1. 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. “
  1. 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
  1. 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.
  1. 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
  1. 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.””
  1. Process Steps
  2. 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.
  1. 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

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Factoring Study Guide – A Primer

Factoring Study Guide - A Primer

Quiz

Instructions: Answer the following questions in 2-3 sentences each.

  1. What is the core function of factoring, and how does it provide working capital for businesses?
  2. Describe the difference between recourse and non-recourse factoring, and what impact does it have on risk for the client and the factor?
  3. How do notification and non-notification factoring differ, and which method is more commonly associated with businesses in weaker financial condition?
  4. What are some common reasons a business might choose to use a factoring facility?
  5. What is Versant’s typical advance rate, and what happens with the remaining percentage of the invoice when it’s paid?
  6. What is Versant’s typical factoring fee structure?
  7. What are the key differences in Versant’s approach compared to other factoring companies?
  8. What types of businesses are a good fit for factoring with Versant Funding?
  9. What are the steps Versant takes when underwriting a potential new client?
  10. What are two industries Versant does not typically factor?

Factoring Study Guide – A Primer

Answer Key

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Versant’s fee is typically 2.5% of the invoice amount for each month (or portion thereof) the receivable is outstanding.
  7. 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.
  8. 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.
  9. 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.
  10. 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.

  1. 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.
  2. 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.
  3. Analyze the competitive landscape of the factoring industry, discussing the differences between smaller and larger factors and Versant’s unique positioning within that landscape.
  4. 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.
  5. 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

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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.

  1. What is the core function of factoring, and how does it provide working capital for businesses?
  2. Describe the difference between recourse and non-recourse, and what impact does it have on risk for the client and the factor?
  3. How do notification and non-notification differ, and which method is more commonly associated with businesses in weaker financial condition?
  4. What are some common reasons a business might choose to use a factoring facility?
  5. What is Versant’s typical advance rate, and what happens with the remaining percentage of the invoice when it’s paid?
  6. What is Versant’s typical fee structure?
  7. What are the key differences in Versant’s approach compared to other factoring companies?
  8. What types of businesses are a good fit with Versant Funding?
  9. What are the steps Versant takes when underwriting a potential new client?
  10. What are two industries Versant does not typically factor?

Answer Key

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Versant’s fee is typically 2.5% of the invoice amount for each month (or portion thereof) the receivable is outstanding.
  7. 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.
  8. 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.
  9. 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.
  10. 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.

  1. 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.
  2. 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.
  3. Analyze the competitive landscape of the factoring industry, discussing the differences between smaller and larger factors and Versant’s unique positioning within that landscape.
  4. 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.
  5. 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

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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.

Funding for Working Capital Shortfalls
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.
 
Chris Lehnes 203-664-1535 clehnes@chhrislehnes.com

Factoring Proposal Issued: $1.2 Million – Medical Device Manufacturer

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Factoring Proposal Issued
Factoring Proposal Issued
  • Business was about to close loan with Non-Bank Lender which suddenly lost its funding
  • Customer base is comprised of many strong companies, but many pay slowly putting a strain on cash
  • Factoring will provide funds needed to cover overhead and execute on new contracts.

Connect with Factoring Specialist, Chris Lehnes on LinkedIn

Learn about other factoring proposals issued

Financing Challenges of Food Producers in 2024

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The food production industry stands as a cornerstone of global commerce, providing sustenance to populations worldwide. Yet, despite its essential role, food producers are confronted with a myriad of financial challenges that threaten operational efficiency and long-term sustainability. As we delve into 2024, these challenges have been further exacerbated by a confluence of factors, ranging from supply chain disruptions to evolving consumer preferences. In this article, we explore the financing hurdles confronting food producers in the current landscape and identify strategies to surmount them. Financing Challenges of Food Producers.

Financing Challenges of Food Producers in 2024

Supply Chain Disruptions: A Persistent Challenge

One of the most pressing issues confronting food producers in 2024 is the enduring impact of supply chain disruptions. From raw material shortages to transportation bottlenecks, the intricacies of global supply chains have been stretched to their limits, resulting in increased costs and operational inefficiencies. For food producers, these disruptions translate into heightened financial strain as they grapple with rising procurement expenses and logistical complexities.

Escalating Input Costs and Inflationary Pressures

The relentless rise in input costs, including commodities, labor, and energy, has emerged as a significant financial headwind for food producers. Inflationary pressures, compounded by geopolitical tensions and economic uncertainties, have eroded profit margins and constrained cash flows. As food producers strive to maintain affordability amid escalating costs, securing adequate financing becomes imperative to sustain operations and remain competitive in the marketplace.

Regulatory Compliance and Sustainability Imperatives

In an era characterized by heightened regulatory scrutiny and sustainability imperatives, food producers face mounting pressures to adhere to stringent standards and invest in environmentally responsible practices. Compliance with food safety regulations, environmental mandates, and ethical sourcing requirements necessitates substantial investments in infrastructure, technology, and training. However, navigating the financial implications of regulatory compliance while maintaining profitability poses a formidable challenge for food producers.

Shifting Consumer Preferences and Market Dynamics

The evolving preferences of consumers, driven by factors such as health consciousness, ethical considerations, and convenience, present both opportunities and challenges for food producers. Adapting product portfolios, enhancing production processes, and embracing innovation are essential to remain relevant in a rapidly changing market landscape. However, the upfront investments required to pivot operations and meet evolving consumer demands can strain financial resources, particularly for small and medium-sized food producers.

Access to Capital and Financing Options

Amidst these multifaceted challenges, access to capital emerges as a critical determinant of success for food producers. Traditional lending institutions may exhibit reluctance to extend credit due to perceived risks associated with the industry’s inherent volatility and uncertainty. Moreover, stringent lending criteria and collateral requirements may pose barriers to entry for food producers, especially startups and enterprises with limited assets.

Strategies for Mitigating Financial Challenges

To navigate the financing challenges facing food producers in 2024, proactive measures and strategic initiatives are indispensable. Collaboration with financial institutions specializing in agribusiness lending can facilitate access to tailored financing solutions tailored to the unique needs of food producers. Additionally, leveraging government-sponsored programs, such as agricultural subsidies and grants, can provide supplemental funding to support capital investments and operational enhancements. Financing challenges.

Furthermore, embracing technological innovations, such as blockchain-enabled supply chain management and precision agriculture technologies, can optimize efficiency, reduce costs, and enhance competitiveness. Engaging in strategic partnerships and vertical integration initiatives can also unlock synergies and diversify revenue streams, thereby mitigating financial vulnerabilities and fostering resilience in an uncertain environment.

Conclusion

As food producers confront an array of financing challenges in 2024, proactive adaptation and strategic foresight are essential to overcome obstacles and thrive in a dynamic marketplace. By embracing innovation, fostering collaboration, and exploring diverse financing options, food producers can navigate the complexities of the current landscape and position themselves for long-term success. Amidst the turbulence of the times, resilience, agility, and innovation will be the hallmarks of food producers poised to seize opportunities and surmount challenges in the pursuit of sustainable growth and prosperity.

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Video: What is the structure of a factoring facility?

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Video: What is the structure of a factoring facility?

Terms vary by factor.

Most usually consist of an initial advance of 75% to 90% against accounts receivable.

Factoring fees (aka discount rates) range from 1% to 3% of the invoice for each month the invoice is outstanding (this may be broken down into five, 10 or 15-day increments).

Lower rates are typically reserved for recourse factors with a greater focus on business performance. Some factors charge both a factoring fee as well as an interest rate on funds advanced. Be careful to read the fine print as some factors may include other charges.

Most factoring facility terms range from zero to 24 months and range in size from $10,000 to more than $10 million per month in factoring volume. Different factors are focused on the low and high end of this range. Many factors require a client to commit to factor a certain volume each month. Some factors set no cap on their facility and will allow fundings to grow as the client’s business grows if they keep selling to creditworthy companies.

First lien on accounts receivable will be required (at a minimum), so ask your client early in the process if they have any outstanding liens on their AR. It may be possible to have an incumbent lender subordinate its lien on AR to allow factoring, but success rates are usually low. Most factoring facility terms range from zero to 24 months and range in size from $10,000 to more than $10 million per month in factoring volume.

Different factors are focused on the low and high end of this range. Many factors require a client to commit to factor a certain volume each month. Some factors set no cap on their facility and will allow fundings to grow as the client’s business grows if they keep selling to creditworthy companies.

First lien on accounts receivable will be required (at a minimum), so ask your client early in the process if they have any outstanding liens on their AR. It may be possible to have an incumbent lender subordinate its lien on AR to allow factoring, but success rates are usually low. The Approval Process For a non-recourse factor, little information over and above a recent accounts receivable aging and customer list may be necessary to obtain a proposal. The factor will use this information to assess the quality of the customer base.

Recourse factors, which perform more of a hybrid analysis, will likely require a standard commercial financing package, including current and historic financials, so they can underwrite the business performance as well as the accounts receivable. Term sheets issued in hours to a few days are common.

The Funding Process Your client will continue to do business as they always have: shipping products, completing services and invoicing their customers. From there, the invoices will be sent to the factor. For a notification factor, the invoice will include payment instructions to the factoring company. The factor will verify the invoice by contacting the customer.

Upon verification, the factor will advance your client 75% to 90% of the invoice — often the same day the invoice is issued. When the factor receives payment from the customer, your client will be sent the “rebate” (the remaining 10% to 25%, less the factoring fee). Most factors will fund their clients as often as daily, or less frequently as needed by the client. Initial funding under a factoring facility is often in less than a week. Once a facility is in place, funding usually takes place the same day a new invoice is issued.

Advantage – Speed Most factors put no restrictions on how funds may be used, but a few uses can include:

• 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 Approvals in hours/days not weeks Flexible use of proceeds Non-recourse – It reduces the credit risk of the seller.

The working capital cycle runs smoothly as the factor immediately provides funds on the invoice. Non- recourse – can reduce collection staff/AR tracking Improves liquidity and cash flow in the organization. It leads to improvement of cash in hand.

This helps the business to pay its creditors in a timely manner which helps in negotiating better discount terms. It reduces the need for the introduction of new capital in the business. Elastic credit facility

Many factors will not put a firm cap on facility size, but will allow the facility to grow as AR base grows Can be helpful with rapidly growing businesses

Disadvantages: Cost – Factoring fees (aka discount rates) range from 1% to 3% of the invoice for each month the invoice is outstanding Inability to leverage other assets An ABL facility may allow advances against Inventory, Equipment and CRE A true factor will only advance against AR Providing factor access to customer base

Contact me to learn more:

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

Factoring: A Cure for the Credit Crunch – Quick Access to Cash

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Factoring: A Cure for the Credit Crunch – Quick Access to Cash

High interest rates and bank failures have incentivized many institutions to preserve capital and limit their lending activities.

This makes financing more difficult to obtain for many small businesses.

We are not a bank and is not impacted by these trends.

Our partners have ample capital to put to work and are actively seeking businesses in need of funding

Our focus is solely on the quality of a company’s accounts receivable and we do not underwrite our clients’ financial performance.

This enables us to fund businesses which do not qualify for traditional lending, but have receivables due from strong customers.

Factoring: A Cure for the Credit Crunch - Quick Access to Cash

Program Overview

  • $100,000 to $10 Million
  • Competitive Advance Rate
  • Non-recourse
  • Flexible Term
  • Most businesses with strong customers are candidates.

We fund difficult deals:

  • New Businesses
  • Highly Leveraged
  • Reporting Losses
  • Customer Concentrations
  • Weak Personal Credit
  • Character Issues

In about a week, we can advance against outstanding accounts receivable to qualified businesses experiencing a credit crunch.

Contact me today to learn if your client could benefit.

Chris Lehnes

203-664-1535

clehnes@chrislehnes.com

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Chris Lehnes 203-664-1535 clehnes@chrislehnes.com My YouTube Channel