What is Factoring? The sale of a company’s accounts receivable invoices in order to obtain working capital. Although there are numerous types of factoring; Versant offers full notification, non-recourse factoring. This means that account debtors (customers of the client company) are notified to pay Versant directly while the credit risk of non-payment is assumed by Versant. It also means we do not care about the financial condition of your client. We only care about the quality of their accounts receivable.

1. Introduction to Factoring
to CCTG Brokers
November 17, 2020
By Chris Lehnes
clehnes@VersantFunding.com
203-304-9527

2. Seminar Objectives
To provide you with:
– A basic understanding of factoring and relevant terminology.
– A step-by-step explanation of the factoring product at Versant.
– Frequently asked questions and answers.
Total Presentation Time: 30 minutes

3. What is Factoring?
• The sale of a company’s accounts receivable invoices in order to
obtain working capital.
• Although there are numerous types of factoring; Versant offers full
notification, non-recourse factoring.
– This means that account debtors (customers of the client company) are
notified to pay Versant directly while the credit risk of non-payment is
assumed by Versant.
– It also means we do not care about the financial condition of your client.
We only care about the quality of their accounts receivable.

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

5. Prospective Client Profile
• Small to medium-sized companies with annual revenues of
$1 million to $100 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
– Owners have credit/character issues

6. Prospective Client Profile
• Client’s customers are typically large corporations, municipalities or
other government agencies.
• With the exception of the medical and construction fields, Versant
will provide factoring to a wide-range of industries with good quality
receivables.

7. How Can Versant Help Your Clients?
• Versant’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 $1 million
to $100 million in sales on an annual basis. Versant will fund larger
transactions if the circumstances are appropriate.
• Versant’s factoring product is non-recourse to the client and does
not require an audit of the client’s business financial performance.

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

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

10. Step 1
Initiating a Transaction
• Identify a business/client that has accounts receivable who may
have a need for factoring.
• Initiate contact with the business/client.
• Once you identify a business/client with a need for factoring you
would hand-off the completed request to Chris Lehnes at Versant.
– A copy of the client’s Accounts Receivable Aging and Intake
checklist should be provided.
• A favorable review of the accounts receivable will generate a
proposal to the client – generally on the same day.

11. Step 1
Initiating a Transaction
1. Find Prospect.
2. Hand off to Versant with
Intake Checklist and Accounts
Receivable Aging.
3. Versant reviews aging and
talks with prospect. If a deal is
reached Versant issues a
proposal.
4. Prospect returns signed
proposal with check for
application fee. Versant
sends prospect application.
5. Prospect returns Application
and Versant sends out
contracts to be signed. When
contracts are returned Versant
makes initial funding.

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

13. 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.
• Receivable verification (Versant 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 – Versant assumes the credit risk.

14. Step 3
Review Process - Underwriting
• 100% Security Interest taken on all of the assets of the client.
Versant will subordinate on all assets other than the A/R if required
by another lender.
• Package of invoices, purchase orders, delivery receipts and
accounts receivable aging report delivered.
• Original invoices with Versant 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.

15. Step 4
Closing and Funding
• Versant 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 75% 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
75% of face value in cash of initial funding
Client Versant

16. Step 5
When a Batch of Receivables is Fully
Closed
• When a batch of receivables is fully closed,
Versant pays the client:
– The difference between the amount collected on the invoices in the
batch and the advance payment (75%) less Versant’s fee.
– Versant’s fee is typically 1.5% - 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 size of
the factoring facility.

17. Step 5
When a Batch of Receivables is Fully
Closed
• Online platform enables clients to review reports and determine
if/when it’s economical to close out aged receivables “batches.”
Cash due
against invoice
The Advance —
75% of the face value of the
accounts receivable.
The Rebate —
The remaining 25% of the
face value of the A/R less the
factoring fee (2.5% of the face
value of the A/R per month
outstanding.)
Versant Client
Client’s
Customer

18. Step 6
Rolling Over New Receivables
• For the term of the agreement (typically 1 to 2 years),
Versant provides constant cash flow to the client.
• New invoices issued by the client are purchased by Versant based
on predetermined terms.
Client’s
Customer
Versant Client
Cash due
against invoice
Goods/Services
Receivables
100% of face value of receivables
75% of face value in cash – up front
Face value (100%) less cash advance
(75%) less 2.5% of face value for each month
outstanding upon closing the batch.

19. Competitive Landscape
• The difference between Versant and the other factors – and what
gives Versant its competitive advantage is:
– Versant handles larger, more complex deals.
– Versant provides fast service and is set up to fund promptly.
• For the first funding - Versant 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.
– Versant assigns an Account Executive to every account – similar to a
personal banker relationship.
– Versant provides clients up-to-date web-based reports that enable them
to monitor the performance of their accounts receivable.

20. Frequently Asked Questions and Answers

21. FAQs
• 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; Versant offers full
notification, non-recourse factoring. This means that account debtors
(customers) are notified to pay Versant directly while the credit risk of
nonpayment is assumed by Versant.
• What are Versant’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.

22. FAQs
• Does Versant offer factoring in all U.S. states?
– Yes.
• Does Versant require certified financial statements in the application
process?
– No, there are no financial statement requirements.
• Does a company have to be profitable to qualify for factoring?
– No, some clients are new companies that have not yet turned a profit, or
they have suffered recent financial losses. Versant looks at the quality
of a company’s customers rather than its specific financial condition.

23. FAQs
• How long does the closing process take?
– A typical deal can be closed and funded within one week of the initial referral
• What industries will Versant 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.
• Is there a minimum volume of receivables that needs to be committed to in
order to qualify for factoring?
– In most cases, Versant will look for a minimum monthly volume of no less that
$100,000 per month.

24. FAQs
• Does Versant require personal guarantees?
– No – this is because Versant takes the credit risk based on the factored
invoices. Versant does require a Performance Guarantee to assure that
the invoices are valid. The principals may be responsible for loss
suffered by Versant if there is a noncredit problem with the accounts
receivable.
• 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.

25. FAQs
• Can a company with little or no credit history qualify for factoring?
– Yes, as long as they have credit-worthy customers.
• 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, over $100 billion worth of factoring is done every year in the U.S.
• Do a company’s customers always know when a company is
seeking financing through factoring?
– Yes, Versant must notify the account debtor to pay the amounts due to
Versant.

26. Example:
Impact of Factoring on Profits
NOTE: The profit after factoring increased both from a dollar perspective and percentage – from $5,000 to $20,000; and
5% to 10% - respectively. By investing $10,000 in factoring (assumes invoices pay in 60 days and a 2.5% per month rate),
the net profit increases by $15,000.
Before Factoring After Factoring
Revenues $100,000 $200,000
Cost of Goods/
Services Sold
$65,000 (65%) $130,000 (65%)
Gross Profit $35,000 (35%) $70,000 (35%)
Variable Cost $10,000 (10%) $20,000 (10%)
Fixed Costs $20,000 $20,000
Cost of Factoring N/A $10,000
Net Profit $5,000 (5%) $20,000 (10%)

27. Contact Information
For more information contact me:
Chris Lehnes
Business Development Officer
203-304-9527
clehnes@VersantFunding.com
www.chrislehnes.com
https://www.youtube.com/user/chrislehnes/videos