EWL FINANCIAL Presents. Introduction to Factoring

Transcription

1 EWL FINANCIAL Presents Introduction to Factoring

2 Factoring Overview To provide you with: 1. A basic understanding of factoring and relevant terminology. 2. A step-by-step explanation of the factoring product. 3. Credit process. 4. Competitive Landscape. 5. Frequently asked questions and answers. 2

3 Introduction to Factoring 3

4 Different Terminology Loan Lending Term Factoring Equivalent Factoring Facility Loan Amount Lender Borrower Note/Loan Agreement Interest Borrower/Obligor Factoring Volume Factor or Purchaser of Receivables Client or Seller of Receivables Purchase and Sale Agreement Discount/Fee Account Debtor/Customer Clients 4

5 What is Factoring? The sale of a company's accounts receivable invoices to a factor, in order to obtain working capital. Although there are numerous types of factoring; EWL FINANCIAL offers full notification, non-recourse factoring. This means that account debtors (customers of the client company) are notified to pay EWL directly while the credit risk of non payment is assumed by EWL FINANCIAL. 5

6 Prospective Client Profile Small to medium-sized companies with annual revenues of $1 million to $40 million. Businesses that need liquidity quickly who cannot wait 30, 60, or 90 days for payment of their accounts receivable. Businesses that need funds but have limited access to traditional credit markets due to lack of track record, limited capital base, or poor earnings history typically: Start-up companies Fast-growing companies Seasonal businesses Companies that have experienced losses Client s customers are typically large corporations, municipalities or other government agencies. With the exception of the medical and construction fields EWL FINANCIAL will provide factoring to a wide-range of industries with good quality receivables. 6

7 How Can EWL FINANCIAL Help You? EWL FINANCIAL s unique factoring product can provide immediate liquidity for your clients. A typical deal can be closed and funded within five business days of the initial referral. Factoring transactions will typically range in size between $1million to $40 million in sales on an annual basis. EWL FINANCIAL will fund larger transactions if the circumstances are appropriate. EWL FINANCIAL s factoring product is non-recourse to the client and does not require an audit of the client s business financial performance. 7

8 Typical Use of Factoring Funds 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 8

9 6 Steps - Understanding Factoring Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Initiating a Transaction Application Review & Legal Documentation Review Process - Underwriting Closing and Funding When a Batch of Receivables is Fully Closed Rolling Over New Receivables 9

10 Step 1 Initiating a Transaction Business identified - that have accounts receivable requirements for factoring. Initiate contact with the business source. Completed request goes to The Factoring Team in the home office. A copy of the client s Accounts Receivable Aging and a client contact will be required. A favorable review of the accounts receivable will generate a proposal to the client generally on the same day. 10

11 Step 2 Application Review & Legal Documentation Receipt of fully executed Proposal Letter, signed Application, and non-refundable application fee from client typically $2,500. Factoring Agreement and related documents prepared by EWL FINANCIAL based on client information provided in their Application. Client signs a Factoring Agreement with EWL FINANCIAL (typically 2-year term). Commitment to a minimum monthly volume (depending on company sales volume). 11

12 Step 3 Review Process - Underwriting Client delivers Accounts Receivable Aging of receivables to be factored. Public records search of UCC filings and liens. Account Debtor (customer) credit review is conducted. Historical sales and collections trends are analyzed. Receivable verification (EWL FINANCIAL conducts calls to account debtors). Purchase and sale agreement for each batch of receivables is executed. Performance guarantee by principals/operators to deliver conforming goods and proper services to debtor. This is a non-recourse transaction - no personal guarantee of credit for the accounts receivable is required - EWL FINANCIAL assumes the credit risk. 12

13 Step 3 Review Process - Underwriting 100% Security interest taken on all of the assets of the client. Package of invoices, purchase orders, delivery receipts and accounts receivable aging report delivered. Original invoices with EWL FINANCIAL assignment sticker mailed to account debtors. Notification of assignment of accounts receivable prepared, sent via certified mail (return receipt requested) and faxed (confirmation receipt retained). Receivables selected and batched. UCC filed. 13

14 Step 4 Closing and Funding EWL FINANCIAL purchases the client s account receivable and assumes responsibility for their collection. Accounts receivable are batched together in agreed upon size. Client is typically advanced 70% of face value of approved receivables in the batch. The balance is paid when the receivable is collected and the batch is fully closed. 100% face value of receivables Client EWL 70% of face value in cash on initial funding 14

15 Step 5 When a Batch of Receivables is Fully Closed When a batch of receivables is fully closed, EWL FINANCIAL pays the client: The difference between the amount collected on the invoices in the batch and the advance payment (70%) less EWL FINANCIAL s fee. EWL FINANCIAL s fee is typically 1.59% - 2.5% of the face value of the purchased invoices for each month that the account receivable is outstanding. Some flexibility in the fee structure may occur depending on the client s financial condition and the alternative financing sources available to them. Client Client s Customer Cash due against invoice EWL Face value (100%) less cash advance (70%) less 2.5% of face value for each month account receivable outstanding 15

16 Step 5 When a Batch of Receivables is Fully Closed Online platform (FactorSQL Software) enables clients to review reports and determine if/when it s economical to close out aged receivables batches. 16

17 Step 6 Rolling Over New Receivables For the term of the agreement (typically 1 to 2 years), EWL FINANCIAL provides constant cash flow to the client New invoices issued by the client are purchased by EWL FINANCIAL based on predetermined terms Goods/Services Receivables Client s Customer Cash due against invoice Client 100% of face value of receivables EWL 70% of face value in cash up front Face value (100%) less cash advance (70%) less 2.5% of face value for each month outstanding upon closing the batch. 17

18 Competitive Landscape 18

19 Competitive Landscape There are many factoring companies in the marketplace that fit into two general categories: Category I a large group of factors with limited capital that hampers their ability to both manage the risks of factoring and to take on larger deals. Most of these factors service deals in the $10,000 - $75,000 per month in sales. Category II a smaller group of more established factors (i.e. CIT, Capital Factors, GMAC, Rosenthal) that service larger deals that traditional banks avoid. This group of factors has similar underwriting processes as traditional banks which limits their ability to fund the type of deal that EWL FINANCIAL would execute. Their focus is on the financial condition of their clients and not the verification of accounts receivable. 19

20 Competitive Landscape Then there is EWL FINANCIAL The difference between EWL FINANCIAL and the other factors discussed in the previous slide - and what gives EWL its competitive Advantage is: EWL FINANCIAL handles larger, more complex deals. EWL FINANCIAL provides fast service and is set up to fund promptly. For the first funding - EWL FINANCIAL can fund within one week of the initial contact. On an ongoing basis, funding typically occurs on the same day that accounts receivable invoices are received. EWL FINANCIAL assigns an Account Executive to every account similar to a personal banker relationship. EWL FINANCIAL provides clients up-to-date web based reports that enable them to monitor the performance of their accounts receivable. 20

21 Frequently Asked Questions and Answers 21

22 FAQs 1. What is factoring? The sale of a company's accounts receivable invoices to a factor, in order to obtain working capital. Although there are numerous types of factoring; EWL offers full notification, non-recourse factoring. This means that account debtors (customers) are notified to pay EWL directly while the credit risk of non payment is assumed by EWL. 2. What are EWL s basic requirements for factoring? That prospective clients provide goods or services to credit worthy customers and that we can verify that the invoices being considered for factoring are accurate. 3. Does EWL offer factoring in all U.S. states? Yes 22

23 FAQs 4. Does EWL require certified financial statements in the application process? No, there are no financial statement requirements. 5. Does a company have to be profitable to qualify for factoring? Not always, some clients are new companies that have not yet turned a profit, or they have suffered recent financial losses. EWL looks at the quality of a company s customers rather than its specific financial condition. 6. How long does the closing process take? A typical deal can be closed and funded within two weeks of the initial referral - in some cases a closing can be expedited. 7. What industries will EWL purchase accounts receivable from? Almost all industries - except medical and construction where clients sell a service or goods and their account debtors (customers) have good credit. 23

24 FAQs 8. Does EWL require personal guarantees? No this is because EWL takes the credit risk based on the factored invoices. EWL does require a Performance Guarantee to assure that the invoices are valid. The principals may be responsible for loss suffered by EWL if there is a non credit problem with the accounts receivable. 9. Who qualifies for factoring? A wide range of companies in a multitude of industries, including some with a negative net worth, that are losing money, and often even companies in Chapter 11 Bankruptcy. Companies that have a bank loan secured by its accounts receivable may not qualify for factoring unless the bank agrees to release its lien on the accounts receivable. 10. Can a company with little or no credit history qualify for factoring? Yes, as long as they have credit-worthy customers. 24

25 FAQs 11. Will a company seeking factoring be viewed negatively by its customers? No, factoring is used by many large corporations in the U.S. and globally to improve cash flow, support growth and increase profits. In fact, nearly $100 billion worth of factoring is done every year in the U.S. 12. Do a company s customers always know when a company is seeking financing through factoring? Yes, EWL must notify the account debtor to pay the amounts due to EWL. 13. Is there a minimum volume of receivables that needs to be committed to in order to qualify for factoring? In most cases, EWL will look for a minimum monthly volume of no less that $100,000 per month. 25

26 Contact Us 1401 Mercantile Lane Suite 200-FF Largo, MD Phone: Fax: Web: Discover More About EWL FINANCIAL Access to capital plays a pivotal role in the success of a growing business. That is why more firms rely on EWL FINANCIAL. To learn more about what EWL FINANCIAL can do for you, we invite you to call any one of the executives in our Business Development Department