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• 1.221 Trillion € world wide in 2008 1
– UK accounted for 18.9% of that volume– US is 5th largest factoring country at 8.03%
• $136 Billion factored in US in 2008 2 • Part of $600 Billion Asset Based Lending
Industry• Factoring has consistently grown since
1976
1 International Factoring Group’s Global Industry Activity Report 2008 2 Commercial Finance Association’s Annual ABL and Factoring Survey, 2008
Factoring Industry
Simple Funding Example:Day 1Invoice Submitted: $1000Advance from Transfac (85%): $850
(normally next day)
Day 40Check received by Transfac: $1000Advance repaid: ($850)Transfac Fee(~3%): ($30)Rebate to client: $120Total Proceeds: $970
What is Factoring?
Credit ContinuumProducts
Price
Borrower Credit Strength
weakest
lowest
strongest
highest
Factoring A/R Line ABL Line of Credit
Debtor Credit Strengthhighest N/A
Liquidityhighest lowest
Lending
• Underwriting:– Collateral– Capacity/Capital
• Debt coverage ratio• Debt to equity• Current and Quick ratio• History of profitability
– Credit• Company/borrower• Owner(s) of company
– Character – Conditions (is it a viable business now)
Lending
• Servicing/Collections:– Monitor payments– Covenants - Monitor financial statements– Minimal labor to service– Collections/work out if problem
• Underwrite Quality of AR– Debtor quality– Concentration of customers
• Billing/collection process – Dilution – Bad Debt
• Positive notification to debtors• Verify invoices before fund• Light collections• Reserve
Factoring
Sources of Repayment1. Debtor
– Manage debtor credit– Notice of Assignment– Verify product or service delivered
2. Reserve3. Client (company)
– Ability to run business– Integrity of owner / management
4. Additional assets (inventory, other equipment, etc.)
5. Personal and corporate guarantee
Factoring
AR Assist
• Bank’s Loan Decision• Transfac services
– Underwrite package - Transfac service prices– Underwrite debtors (suggest limits)– Notify Debtors / Verify invoices (percentage
determined by bank)– Input/upload invoices schedules from client– Collection of invoices– Lock box (if needed)– Cash application of each invoice– Monitoring each invoice– 24/7 online reporting for bank and client
AR Partner
• Bank/Transfac client origination• Transfac
– Underwrites– Funds– Services
• Bank participates in percentage or fixed amount of facility– Fee income settled monthly– Performance reporting
• Bank keeps deposits
AR Refer
• Bank turn down referred to Transfac– New applicants– Work outs or non-renewals
• Transfac funds and services• Bank can reinstate any time• Referral fee paid monthly for life of
account• Referral Network for non-Transfac
deals
Underwriting-AR Assist
• Prospect sheet• Application, customer list, AR aging and AR
Questionnaire, simple financials, simple write up• Transfac provides servicing proposal within 24
hours• Bank/client accept• Transfac completes underwriting suggestions • Submits to bank/client for approval and Process
Rules• Servicing agreement with client• Bank’s loan documents (if needed)• Works with client and bank to set up
AR Assist Set up
• Set up check list
• Addendum to servicing agreement– Debtor limit signoff– Verification agreement– Collection agreement– Lock box/cash application agreement– UCC Monitoring agreement
AR Assist Daily Funding
• Invoice schedule from Client to Transfac
• Transfac inputs schedule
• Bank sees availability– Client Summary– Collections
• Bank transfers money to client’s accounts
Example: Bank $10,000 face amount of invoices
DebitCredit
Client’s Commercial
Loan Account Ledger: $10,000
1.5% Service Fee to Transfac: $150
10% to Client’s Reserve Account: $1,000
Remainder (88.5%) to Client’s DDA:$8,850
Example: $10,000 of invoices pay in 40 days
DebitCredit
Client’s Commercial
Loan Account Ledger: $10,000
Bank interest (ex 12%APR):$131.51
Interest Cost from Client’s Reserve: $131.51
Transfer Reserve to $868.49
Client’s DDA: $868.49
Marketing
• Review of current portfolio for good candidates
• Turn downs of applicants
• New Product offering of Bank
Training
• Transfac operations works with designated bankers to work with current loan approval process
• Understand reports, schedules, collections, and cash application
• Transfac available to work with any client bank decides
Bank Benefits
• Keep clients– Additional loan revenue– Deposits– Service of term loans
• Work out deals
• Decrease risk
• Decrease labor
• Increase Offering
Transfac Advantage
• Experience– Management from several large factors and banks
with decades of experience – Account Executives over 10 years at Transfac
• Reliability – Bankers, CPAs, Attorneys trust their clients with
Transfac– Several clients 5+ years with Transfac (rare in
factoring)
• Responsive– Clients and referral sources get timely answers– Proposal within 24 hours; funding in 72 hours
• Service: More than money
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