1. Business Matchmaking: Show Me the Money Alternative Financing – Factoring March 4 and 5, 2003 Barbara Aitchison

2. What is Factoring? Factor purchases valid Accounts Receivable from customer at a discount for cash. Customer continues to make the sale and set payment terms as usual. Factor collects payment on invoices and releases remaining amount of invoices, less fees, to the customer.

3. What does Factoring do? Provides working capital financing Acts as the customer’s credit department Performs Accounts Receivable accounting Supplements the customers’ collection efforts

4. What are the Critical Elements? Valid, verifiable invoice Credit worthy Account Debtor Account Debtor willing to pay a 3 rd party

5. How does Financing Work? Little to no emphasis placed on the Customer Shift credit risk to Account Debtors Direct verification of Accounts Receivable Each invoice accounted for separately Direct collection of outstanding A/R

6. How is Financing Structured? Typical advance rate is 80% Pricing based on volume and complexity Cost is tied to the length of time an invoice remains outstanding

7. Who do Factors work with? Companies who can’t obtain traditional forms of financing: Experiencing significant growth Large A/R concentrations Governmental and Foreign A/R Start ups or limited operating histories Highly leveraged companies Losing money Little or no equity

8. How do Companies Benefit? Immediate Cash Flow Reduce credit risk exposure Credit Management Services Collection Services Accounting Services Comprehensive Reporting

9. What Types of Industries Factor? Staffing Distribution Transportation Manufacturing/Wholesale Service Companies

10. Factoring Summary 1. Seller and Factor agree to factoring terms. 2. Seller negotiates price with buyer. 3. Seller ships goods to buyer. 4. Factor buys receivables from seller, advancing cash for up to 90% of the value. 5. Factor collects payment from buyer. 6. Factor sends the remainder of invoice amount, less fees, to seller.

11. What is Asset Based Lending? Financing secured by certain business assets which are pledged as collateral Facilities normally are built around a revolving line of credit secured by Accounts Receivable and Inventory Can include term loan financing secured by Machinery, Equipment, and Real Estate Focus is on collateral, expected cash flow, and recent trends vs. balance sheet strength and leverage.