Surviving the Drought January 19, 2012 Bill McDermott-McDermott Financial Solutions

Surviving the Drought How many of your clients are struggling with cash flow? What sorts of issues are they having? How many of your clients have an active LOC? How many have had their line decreased in last months? How many have had the bank restrict the terms of their LOC?

Outline How to advise your clients that are experiencing cash flow issues when they come to you for help Do bank treasury management products play role in the solution? If so, which ones are helpful and why Are lines of credit to solve cash flow issues still available? If so, how do I advise my client where to find them?

How to Survive Remote depositACH/Zero balance acctsLockbox/Positive Pay

Remote Deposit … Bank from your desktop even your mobile phone Less trips to the bank saves time and expense 2 pm cutoff now extended to 5-6 pm Pick up at least 1 days sales in cash

ACH is short for…………. Automated Clearing House Predetermines settlement date of receipts and disbursements Improves your cash flow forecasting for that reason Eco-friendly alternative to checks and wires and the cost is about 25% vs paper

ACH does have credit risk Banks have a two day delay in the settlement of some ACH items. Be prepared to tell your client the bank may impose a file limit It is likely the bank will ask for financial statements

Zero balance accounts… Interest rates on savings and money markets accounts are not worth fooling with However, your client may use this to reduce the line of credit on a daily basis Every $100,000 paid down equals $11.64 per day to your client assuming Prime plus 1 You want to be sure the cost is outweighed by the benefit

Fraud prevention with Positive Pay… In this current economy, white collar crime is up. Lack of internal controls opens your client up to internal fraud issues Positive Pay is a tool where your client and the bank can reconcile a checks issued electronic file with a checks paid file on a daily basis Discrepancies are brought to management’s attention immediately

How about a line of credit? Any of your clients gone shopping? How many of your clients have gone shopping for a new banker/banking relationship in the last 2-3 years? What did they learn?

Is Your Client’s Bank on a Watch List? Has it been sold or acquired in the last 5 years? Do you sense your client’s loan is in a special assets category?

One of the best shortcuts to finding financing for your client’s business Find a bank that is profitable, has adequate capital and is either raising capital, paying back TARP money or both You can’t assume every bank is lending money just because their doors are open MOU, Consent orders and Cease and Desist orders are public records, just know where to look (Google search-bank name consent order) Google search/alerts, fdic.gov

If you find out your client’s bank has a health issue, then I would suggest having a back up plan. You want to help your client control their financial destiny, not put it in the hands of their bank/banker

Special situations and circumstances 30 day payout-your client’s payout requirement in the commitment letter may be enforced now vs. in the past Covenant default- your client may have accidentally tripped a debt to worth or cash flow covenant in their commitment letter Covenant defaults may now lead to forbearance agreements instead of being waived.

Questions? Bill McDermott