1. Sarsha Adrian Senior Consultant Graber Associates TMANE Annual Meeting May 5 th 10:45- 12:00 Session 505

2.  Founded in 2002  Financial Services and Technology Markets  Experienced subject matter experts  Research, Marketing Strategy & Execution, and Public Relations  Offices in Boston, Burlington, London, New York (C) Graber Associates LLC 2011

3.  Part of the trillion-dollar Cash Flow Industry  A simple, untapped channel of wealth  Factoring involves the buying and brokering of a company's accounts receivables  In today’s credit-restricted market, factoring is mainstream. (C) Graber Associates LLC 2011

4.  Practiced for centuries  Romans sold promissory notes at a discount  Factors financed the new world  Today, $150 billion dollar industry  Better known in Europe than in U.S. (C) Graber Associates LLC 2011

5.  Businesses sell accounts receivable (invoices) to Factors for cash ◦ discounted price, based on level of risk  Effective management of receivables  Boosts company profitability (C) Graber Associates LLC 2011

6.  Merchants who accept credit cards  Payday loans  Both have different “clients” and “customers” but concept the same (C) Graber Associates LLC 2011

7. Factor Basics  Factors rates of return far superior to those of traditional investment vehicles ◦ Unregulated business, can charge market rates ◦ Assume the risk of collection ◦ Factors must be aware of the creditworthiness of their clients’ customers ◦ Those customers become the factors’ debtors

8.  Client (seller)  Customers (debtors)  Account receivable (invoices)  Advance (% of invoice paid to client)  Reserve (% of invoice held by Factor)  Discount Rate (% amount charged by funding source for use of money)  Recourse / Non-recourse  Contract period  Fees (services, credit) (C) Graber Associates LLC 2011

9.  Need immediate cash flow to fund growth, make payroll, etc.  Smooth out cash gaps  Want to build up company cash reserves  Eliminate collection hassles  Don’t want more debt on balance sheet  Don’t want to dilute company equity  Can’t get or wait for bank financing (C) Graber Associates LLC 2011

10.  Flexible and powerful strategy to improve cash flow ◦ Remember the Time Value of Money  Receivables can be monetized  60% of business’ cash is tied up in accounts receivable (Payments)  Average days sales outstanding (DSO) across all industries is 65 days (C) Graber Associates LLC 2011

11.  Given the choice between receiving $100 today or $100 next year, the obvious choice is Today. Why?  Inflation – “eats away” at purchasing power  Delay - you can’t put the money to work earning interest or a return on investment Time Value of Money (C) Graber Associates LLC 2011

12. Factors’ Fees and Rates  Base discount for the first few days ◦ Initial 3%  Incremental discount for following days  1% for every additional 10 days  Large factors also require application or due diligence fees  1% up front  Also billing fees

13. Present Value of a Payment Fees and Rates Calculation (C) Graber Associates LLC 2011

14. Factoring Examples Factoring Examples Factor 1  Advance 80%  Discount 3% for first 30 days  1% for every 10 additional days  Annual return = 3% x 365/30 = 36.5%  Monthly commitment for 1 year of $100,000 = $3,000 per month  Discount / Advance = Monthly Return on Advance amount ($80K) = 3.75%  APR: 3.75% x 365/30 = 45.625% Factor 2  Advance 85%  Discount 2% for first 15 days  1.5% for every 15 additional days  30 day discount 3.5% = $3,500  30 Day Return % $3,500/$85,000 = 4.1177%  APR: 4.1177% x 365 /30 = 50.00987%

15. (C) Graber Associates LLC 2011 16.8 MM Large Corporate and Micro Business $50,000 - $1 Million Middle Market $10+ Million SOHO/ Self-Employed Revenues vary Small Business $1 - 5 Million High End Small Business $5 - 10 Million 6.2 MM 1.4 MM 121,000 130,000

16.  Many large factors service large corporate clients ◦ Metro areas: check the Yellow Pages ◦ Minimum commitment of $100,000 + per month ◦ GE Capital, CIT  Regional factors ◦ Riviera, Millennium, LSQ, Gateway, Bibby  Small local factors ◦ Independent investment businesses interested in short- term financing  Web ◦ New exchanges (C) Graber Associates LLC 2011

17.  Spot Factoring  Single invoices  Online Factoring  Lower rates  No minimums  100% cash upfront  Easy signup  No non-payment insurance  Small invoice amounts  INZAP Factoring  Facteon  Auction Sites  Receivables Exchange  DebtX  Business-to-Business  TradePay  Bank Solutions  Asset-based lending

19.  Security Guard Company  Oil Well Service Company  Electronics Importer

20.  Provides security guards for large retailers that have parking lots (Home Depot, e.g.)  Locations in NY, NJ, PA, and MD  Closely held  $20 million in annual revenue (approximately)

21.  Business challenges: ◦ Started small - $20,000/month in sales ◦ HUGE initial growth curve – payroll was main problem ◦ Could not access “traditional” financing (i.e., bank) to handle growth ◦ Inexperienced management ◦ No administrative infrastructure

22.  Factoring Provided: ◦ Straightforward and fast underwriting approval – 5-10 business days at most ◦ Ability to fuel extreme growth curves – in this case 2,500% in year one ◦ Mailing and collection of invoices ◦ Cash posting of factored invoices ◦ Online, real-time reporting on account metrics (turn, credit limits, ledger, etc.)

23.  Results: ◦ Cost of factoring started at about 4% of sales and is currently at 2% of sales ◦ Cemented client’s reputation with large customers ◦ Fewer resources expended on unnecessary infrastructure (employees, larger office space)

24.  Provides process for capturing more oil from the well during production  Family owned business  Operates in TX, LA, AR and PA  Annual revenue growing to about $30 million

25.  Business Challenges: ◦ Need to capture business by “being ready” when called ◦ DSO runs approx 65 days – extreme cash flow pressure ◦ Capital equipment intensive business ◦ Lack of good documentation for completion of service

26.  Factoring Provided: ◦ Access to instant cash - zero down time between jobs ◦ Solution to long DSO of 65 days ◦ Cash reserves to rent or purchase capital equipment needed to complete jobs ◦ Streamlined document signoffs and invoice submission ◦ Very positive unanticipated effect!

27.  Results: ◦ Cost of factoring started at 7% of sales and decreased to 5% of sales ◦ Better relationship with customers resulted in additional business ◦ Can focus on what they do best, rather than what they hate doing – chasing invoices

28.  Imports consumer electronics goods from China  Ownership diluted among approximately 100 investors  Customers are big-box retailers  Annual sales unpredictable – seasonal and based on current market needs

29.  Business Challenges: ◦ Unpredictable sales cycle ◦ One PO could range from $100K to $3M ◦ PO financing and factoring needed to complete on- time delivery ◦ Desk, phone, and laptop the only “infrastructure” in the U.S. ◦ Concentrated credit exposure

30.  Factoring Provided: ◦ Flexibility to accommodate wild sales fluctuations ◦ A partner with a PO finance company to complete order ◦ Outsourced A/R management ◦ Credit approval ◦ Credit risk of customers

31.  Results: ◦ Cost of factoring ranged between 3% and 5% of sales (depending mostly on DSO) ◦ Now able to execute on POs without PO financing and factoring (“OPM”) ◦ Better assessment of credit risk ◦ Protection from credit risk

32.  Factoring is a financial tool – and like all tools it has its place  Cost of factoring includes more than just capital – there are other services involved  Risk tolerant (underwriting of client)  Quick  Limited asset filing  Short-term (6-12 months usually)

33.  http://www.factoringresources.org http://www.factoringresources.org  http://www.factoringcompanies.org http://www.factoringcompanies.org  http://www.americanfactoring.org/Links.asp http://www.americanfactoring.org/Links.asp (C) Graber Associates LLC 2011

34.  Many more options  Increased competition has lowered rates  More flexible, shorter term contracts  More mainstream thinking (C) Graber Associates LLC 2011

35. Questions?

36. (C) Graber Associates LLC 2011 Thank you! Sarsha Adrian Senior Consultant Sarsha@graberassociates.net