1 Obdam, the Netherlands, April 28, 2012 Business Plan For optimal working
3 2 Credit Sales CONTENTS 1. Introduction 3 2. Objective 3 3. Factoring 3 4. Team 6 5. Funding 6 6. Pledge for funders 7 7. Credit insurance 9 8. Clients 9 9. IT Credit Management Forecast CVs 15 Credit Sales Business Plan, April 2012
4 3 Credit Sales 1. INTRODUCTION Through this business plan, Dirk Scheringa, CEO and Marcel Meijer, COO, would like to provide you with information on Credit Sales in a number of ways. The business plan addresses issues such as objectives, procedures, our team, and results and forecasts. 2. OBJECTIVE Credit Sales objective is to establish the most professional and enterprising factoring company in the Netherlands. Due to Basel III regulations designed to increase banks capital bases and capital positions, a growing number of banks are retreating and providing less credit to businesses. Credit Sales can provide maximum liquidity, which goes beyond what banking institutions typically offer. 3. FACTORING 3.1 DEFINITION Factoring is a way for businesses to ensure that they have direct, flexible working capital available. Factoring companies purchase invoices (i.e. accounts receivable) from businesses and directly pay out the invoice amount, subject to a charge (known as a factoring fee ). 3.2 CREDIT SALES PROCEDURES Credit Sales has opted for the American Factoring model, a system whereby businesses sell their invoices to Credit Sales and, at the same time, transfer the ownership of these invoices. In exchange, the company has immediate access to the invoice amount, no longer needs to manage the invoices transferred, and is no longer exposed to the risk of debtor insolvency on these transferred invoices. The business pays Credit Sales for this service this charge is known as the factoring fee. In exchange, Credit Sales ensures maximum liquidity within organisations by making credit available on a daily basis. Credit insurance has been purchased and solely insured accounts receivable are transferred.
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6 4 Credit Sales 3.3 BENEFITS OF FACTORING Increased cash reserves Direct liquiditity through the purchase of accounts receivable, with the benefit of higher percentages than a banking facility (i.e. 90 to 97% of the invoice amount). Longer term of outstanding accounts receivable is not a problem. Reduction in the number of Days Sales Outstanding through the direct sale of the invoice. Flexibility Taking advantage of purchasing discounts. Cash reserves can increase along with revenue. Cost savings Outsourcing of Credit Management Improved results from debt collection through the courts. Less use of collection services thanks to consistently effective credit management. Increased availability of credit makes it possible to pay creditors sooner, thereby providing room for purchasing discounts. 3.4 FACTORING CONDITIONS Approval from the Credit Sales Credit Committee. The company must be located (i.e. have its registered office) in the Netherlands. Minimum expected revenue is EUR 500,000 per year. The company operates in the business-to-business market. Debtors must have a good credit record (i.e. a credit check must be performed with the credit insurer). Bills are based on services completed, i.e. no periodic billing. The debtor must have been operating for at least 3 financial years. There must be a good distribution of debtors. Debtors must be insurable. If appropriate, the business must enter into a commitment in the form of a personal guarantee.
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8 5 Credit Sales Example A client is interested in factoring via Credit Sales and has an invoice of in the amount of EUR 15,000. If the client complies with all the criteria set, a contract is entered into with the client, which can be regarded as a framework contract. The credit insurer is subsequently requested to provide a credit limit equivalent to the invoice amount stated on the invoice the company intends to transfer. Upon approval, the invoice to be transferred is insured, and Credit Sales verifies the invoice with the debtor. If the latter confirms the accuracy of the invoice, Credit Sales then purchases this invoice. Within 2 working days, 91% of the invoice amount assumed (EUR in the example) is then transferred to the client. The first 30 days will cost 3%, after that period we charge 0.1% of the invoice amount per day to the client as long as the account receivable is outstanding. Once the debtor has settled the debt, total costs are calculated. On final settlement, the remainder of the 9%, less the 0.1% per day, with a minimum of 3% known as the factoring fee, is paid to the company.
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10 6 Credit Sales 4. TEAM Dirk Scheringa CEO Dirk has 30 years experience as CEO of DSB Bank. Marcel Meijer: COO Marcel has many years of experience as the director of a medium-sized collection agency, as well as having additional expertise in banking. The company is located in Obdam in the Province of North Holland, due to the relatively low establishment costs and wage costs and the availability of skilled professionals. The full team currently consists of: Dirk Scheringa CEO Marcel Meijer: COO Chantal Schilder: Executive Assistant Erwin van der Staaij: Account Manager Edwin Schaafsma: Account Manager Jurjen Bron: Account Manager Chantal Molenaar: Acceptor Vincent Schuit Acceptor 5. FUNDING Only professional companies are eligible to provide working capital to Credit Sales. The conditions and the return on investment are te be discussed determined. Interest is paid monthly in arrears. Credit Sales Business Plan, April 2012
11 7 Credit Sales 6. PLEDGE FOR FUNDERS SITUATION Credit Sales provides security for funders by means of a right of pledge created on the outstanding accounts receivable purchased by Credit Sales. The provision of individual rights of pledge to each funder involves a great deal of administrative work, as the contents of the lists of receivables pledged to the bank may differ from day to day and must be monitored and updated separately for each funder. SOLUTION In order to reduce administrative burden while at the same time safeguarding the interests of the funders, Stichting Pandrecht ( Pledge Foundation ) was established for the specific purpose of protecting these interests. The foundation is essentially used as a vehicle to integrate and protect the interests. The purpose is to bring funders in a position comparable to that of a pledge holder in the event of Credit Sales bankruptcy. STICHTING CREDIT SALES AGREEMENT The foundation agrees with Credit Sales that it has an independent (parallel) receivable from Credit Sales, which is equal to the rights of claim of the joint funders. In addition, the parties agree that the parallel receivable is due and payable only if and to the extent that the principal account receivable is due and payable. A change in one account receivable always, automatically results in the same change in the other account receivable. This gives the foundation an independent right of claim against Credit Sales. The securities (i.e. right of pledge) provided as part of funding with a parallel debt are granted in compliance with the requirements arising from the foundation s parallel debt. The agreement between the foundation and Credit Sales contains a third-party clause, which requires the foundation to transfer funds received to the funders. FOUNDATION MANAGEMENT BOARD The management board consists of a chairman, Mr R.L.O. (Robin) Linschoten; a secretary, Mr B. (Boy) Cooper; and a treasurer, Mr P.J. (Peter) Verdegaal, Chartered Accountant. PRACTICAL IMPLEMENTATION a Pledge Foundation (Stichting Pandrecht) has been established. The foundation s management board will consist of three independent, expert professionals; there is a protection agreement in place between Credit Sales and Stichting Pandrecht; there is a deed of pledge the security for which is the outstanding accounts receivable
12 purchased by Credit Sales ; once a week; the civil-law notary prepares a list of receivables pledged to the bank and forwards it to the foundation; as a rule, cash flows run between Credit Sales and the funders; Credit Sales can transfer payments to the foundation; however, in that case it is required to transfer this payment directly to the appropriate funder. Credit Sales Business Plan, April 2012
13 8 Credit Sales Diagram FUNDERS (Third-party clause) Transferring funds in respect of parallel debt Loan Repayment of liability Management Board Robin Linschoten Peter Verdegaal Boy Cooper CREDIT SALES B.V. Parallel debt STICHTING PANDRECHT Receivables Pledge related to parallel debt CLIENTS
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15 9 Credit Sales 7. CREDIT INSURANCE As noted, the invoices to be acquired are insured against the risk of default, subject to a coverage ratio of 90% and an excess of EUR 500 per account receivable. Invoices that have not been settled are transferred to the credit insurer after 90 days. Credit Sales then receives the outstanding balance from the insurance company, less the coverage ratio per debtor. 8. CLIENTS The majority of Credit Sales clients are large companies and small and medium-sized enterprises (SMEs). Credit Sales focuses specifically on businesses about to enter a period of growth. Businesses with negative cash flow and/or businesses judged as not creditworthy by the credit insurer are not eligible for a contract with Credit Sales. Credit Sales clients operate in the transport, manufacturing, healthcare, retail, wholesale, services and staffing industries. The following communication channels will be used to attract new clients: social media, press releases, network, ings and online advertising. Credit Sales has partnered with an experienced field sales team, who make visits to all Credit Sales clients. 9. IT Credit Sales operates a professional IT system that is among the very best in the financial services industry. Processes are automated as much as possible. Minimum number of human errors; low overhead. Links containing details of external parties. Applications can be processed by a relatively small team through the optimum use of IT resources. Clients can log on to track the payment of their invoices.
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17 10 Credit Sales 10. CREDIT MANAGEMENT 10.1 PARTNERSHIP WITH MKB DEBITEURENBEHEER Credit Sales has a partnership with MKB Debiteurenbeheer, a inhouse company that employs experienced professionals who provide comprehensive solutions for the entire chain: from billing and credit management to collection. The latter specialises in the following solutions: Credit Management. Credit Management. Collection/Insolving. Execution of Debtor Portfolios. Policy management. Software WHY MKB DEBITEURENBEHEER? Credit Sales carefully selected MKB Debiteurenbeheer as a partner. MKB Credit Management: Is bank-independent. Is known for its state-of-the-art Credit Management software system. Maintains an excellent professional BackOffice with years of experience in Credit Management and Factoring Is solid in all-round Credit Management. Is flexible and effective. Employs people with many years of experience in credit management MKB DEBITEURENBEHEER S PROCEDURES MKB Debiteurenbeheer performs the following duties: The company manages accounts receivable from the time the invoice is entered up to and including the settlement of the final payment. A credit limit is requested for each account payable. Within this limit and under the rules, the credit insurer bears the risk of default up to 90%. MKB Debiteurenbeheer is responsible for liaising with the credit insurer. MKB Debiteurenbeheer consistently sends payment reminders to debtors, ensuring that they pay sooner. If payment terms are not complied with, MKB Debiteurenbeheer contacts the debtor, in con junction with the company. MKB Debiteurenbeheer is responsible for the entire collection process.
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19 11 Credit Sales 10.4 RISK MANAGEMENT The following activities are part of the Risk Management field: Credit Check / Liquidity limit / Advice limit Billing / Verification Credit Management Payment processing / direct debit Extrajudicial and Judicial Collection Bailiff Communications with Credit Insurer Communications with Credit Sales (bank-independent) 10.5 CREDIT MANAGEMENT OUTSOURCED BY SMES Outsourcing credit management involves a number of benefits for businesses; the main ones are listed below: Credit Check / Liquidity limit / Advice limit The needs of the business come first. Saving time and, by extension, employee costs. Lower average term of the debtor portfolio. Disputes are identified sooner thanks to consistently effective management. Reduction in the number of Days Sales Outstanding. Improvement of the working capital. Lower rental charges CREDIT INSURANCE MKB Debiteurenbeheer manages credit insurance, which involves a variety of benefits: Limit overview including limit clauses through the SME Credit Management System. Credit management is adapted to the policy terms. The SME Credit Management System provides the credit insurer with information on debtors payment behaviour. Claim adjustment is handled directly with the credit insurer. Communications with the credit insurer regarding zero limits, excessively low credit limits, and the withdrawal of credit limits. Support in policy negotiations with credit insurer. Default risks under control.
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21 12 Credit Sales 10.7 COLLECTION With its collection service, MKB Debiteurenbeheer works on the basis of: Excellent results and quick transfer of amounts debited. Dedicated, expert contacts during the settlement of your collection cases (ranging from amicable settlement to judicial collection). No win, no fee. Trust account. Global collection network. Detailed online customised reports. Transparent costs 10.8 BENEFITS OF THE CREDIT MANAGEMENT SYSTEM Use of the Credit Management System involves the following benefits: The Credit Management System is a high-quality, internet-enabled system offering all features required for effective credit management. Saving time and, by extension, personnel costs Reduction in the number of Days Sales Outstanding. Clients have real-time, online access to accounts receivable, at the total, accounts receivable and invoice level. Default risks are reduced. Smooth transition to collection and bailiff processes. Online access to debtors financial position. Credit Sales Business Plan, April 2012
23 13 Credit Sales SUMMARY The table below shows how the partnership between Credit Sales and MKB Debiteurenbeheer works in practice. Credit Sales Business Plan, April 2012
24 14 Credit Sales 11. FORECAST A forecast for the next 3 years is included below, along with a cash flow statement. Basic conditions: General Factoring fee: 6% Debtors payment terms: 60 days Interest funding: 6% per year (average) Budget (in EUR x 1,000) Funding 18,750 53, ,750 Gross purchases 82, , ,504 Factoring fee 6% 4,968 18,864 39,930 Irrecoverable provision 0.30% ,997 Gross margin 4,720 17,921 37,934 Expenses Operating expenses 1,788 3,866 5,607 Average interest 6 % 659 3,225 6,225 Total expenses 2,447 7,091 11,832 Profit before tax 2,273 10,830 26,102 Corporation tax 25% 568 2,707 6,525 Net profit 1,704 8,122 19,576 Credit Sales Business Plan, April 2012
25 15 Credit Sales 12. CVS DIRK SCHERINGA Entrepreneur. CEO of the year 2007 in the Netherlands. Current Since 2011 CEO Credit Sales B.V.. Past CEO DSB Bank N.V CEO Scheringa Museum voor Realisme CEO AZ N.V Gemeenteraadslid CDA Opmeer Gemeenteraadslid CDA Opmeer Police officer Lid geneeskundige troepen Assistent accountant Leerling handzetter MARCEL MEIJER Registered credit professional. Present Since 2011 Managing Director, Credit Sales B.V. Past experience Managing Director and founder, Inspectrum Groep B.V Sales Director, DSB Bank N.V Branch Manager, KFM Financieringen B.V Credit Cycle Manager, Citibank N.A. Credit Sales Business Plan, April 2012
26 16 Credit Sales CONCLUSION Credit Sales is convinced that it has found a niche in the market with this concept. The need for liquid- ity at small and medium-sized enterprises (SMEs) has never been as great as it is now, and whereas other providers (i.e. banking institutions) are taking a step back in the market, Credit Sales is taking one step forward. Furthermore, Credit Sales has all that is needed to serve the market as effectively as possible: from marketing to credit management; from sales to management. Our people perform at the highest level in all areas. As part of this risk-averse concept, funders can achieve a high return on their credit funds, while busi- nesses can achieve the desired growth through cash injections (i.e. factoring). Credit Sales Business Plan, April 2012