Factoring Facts Revealed

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The Cash Flow Solution

Factoring

Facts

Revealed

Everything you need to know about the Factoring

Industry and how it could benefit your business!

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TheCashFlowSolution.com

First, a little about us…

The Cash Flow Solution specializes in debt-free business financing, utilizing a simple, fast process, typically resulting in cash payout in as little as 24-48 hours. We provide a unique auction-based marketplace that connects business owners and a group of nationwide funding sources that fund in excess of $1 billion dollars in working capital solutions each year. With over 100 years of combined industry experience, our staff of cash flow specialists and business professionals can help you make the right decision for your business.

Why do business with us?

Simply put, The Cash Flow Solution offers quick and convenient working capital solutions to small to mid-sized businesses when traditional financing is not available.

When banks say “NO” We typically say, “YES!” And companies just like yours are seeking our resources in order to turn their accounts receivable into immediate capital to fund:

 growth and expansion,

 increase sales or pay fixed costs,  meet payroll and payroll tax,

 pay suppliers on time or take advantage of early payment discounts,  and maintain a good company credit rating.

Thank you

for downloading our eBook. You will soon discover everything you need to know about the Factoring Industry, its history and uses, features and benefits, and if the Factoring Solution would be the right choice for your business and its cash flow needs. We feel that information is king when it comes to making confident decisions and hope this eBook helps with yours. Don’t hesitate to contact us should you have any questions…

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Factoring Facts Revealed

Chapter:

Page:

About Us 2

Table of Contents 3

Did You Know…? 4

Alternative Financing Solutions 5

The History of Factoring 7

The Facts about Factoring 8

Understanding the Trends 8

Is Factoring Just for a Few Select Industries? 10

How Factoring Works 12

Factoring Terms 13

How Do Factors Make Money? 14

Factoring Case Studies 16

FAQ’s 22

How Do We Compare? 24

Ways to Minimize, if Not Eliminate Factoring Costs 25

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Did You Know...

Regardless of size or industry, cash flow management is repeatedly cited as the key to

the lifeblood of any business. The biggest challenge is sourcing capital to fund daily

operations. Even those companies that are doing well often find themselves out of luck

when it comes to finding the necessary capital to meet demand, much less to take

advantage of growth opportunities. The Cash Flow Solution makes the daunting task of

finding cash flow easier for your business, and without having to lose control or go

through a lengthy (often fruitless) application process.

There IS a Solution – with The Cash Flow Solution!

✓ Debt Free Financing – up to $100,000.00 - $5,000,000.00.

✓ Don’t let Good credit, Bad credit or No credit stand in your way.

✓ Simple Process, Flexible and ideal for non-bankable businesses.

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Alternative Financing Solutions

Accounts Receivable Funding:

When you need working capital, where do you turn? Banks? Investors? Relatives?

These days, banks aren’t the easiest places to get money. You need assets, strong cash flow and a record of success. To make matters worse, banks prefer to loan you a very specific amount of money – then, as soon as you get the cash, you have to start paying it back.

Commonly referred to Factoring, this method is defined as the purchase of an Invoice for a business-to-business or business-to-government transaction for products delivered or services rendered in the past, at a discount fee. Factoring is NOT a LOAN; it is the discounted purchase/sale of a non-

performing asset (accounts receivable/outstanding invoices) that is paid over time.

Before the 1980s factoring was used primarily in the garment, textile, and furniture industries, and typically only available to larger companies. Factoring has since become a widely accepted financing alternative and, in many cases, the financing tool of choice to help companies thrive.

In today’s credit climate, businesses are holding on to their cash for as long as they can. This means that suppliers to these businesses are

becoming “stretched out” in regards to receipt of payments. Companies that were accustomed to receiving payment on their invoices in 30 days are now faced with the reality that the payment cycle is now surpassing 60 days or more. The trickle-down effect of this is tremendous…

Without the needed cash flow, companies are forced to make tough decisions:

 Employees are being let go (no money for payroll).

 Supplier payments are often delayed (resulting in delayed or cancelled shipments for future orders).

 Payment of operating expenses are delayed (negatively effecting the company’s credit history which will adversely affect their purchasing power).

 Payment of taxes are delayed (resulting in judgments and tax liens).

By selling some or all of their invoices, a company can receive up to 90% of the total face value of an invoice, creating immediate cash flow to sustain the day to day operating challenges.

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Purchase Order Funding:

A Purchase Order is a formal agreement between a company (supplier) and a customer regarding a product being shipped at a certain time and sold at a certain price.

Purchase Order Funding is a short term financing tool that provides 100% of the cost associated in filing a purchase order from a creditworthy customer. When a business (distributors, wholesalers, resellers, new startup company) receives a purchase order for a product, the business often needs money in advance to pay the supplier for the product that has been ordered. In most cases the purchase order has to be for a finished good or product to qualify for Purchase Order Funding.

Purchase order transactions are distinct from factoring transactions in that purchase orders are simply a promise to buy goods rather than an invoice for goods already delivered.

Medical Factoring:

Doctors and other health-care professionals that bill insurance, HMO’s or Medicare/Medicaid know how the payment cycle of the industry works. Basically, hurry up and wait, is the norm. It is not uncommon for a medical professional to send a claim to an insurance company and then have to wait 30, 90 or even 120 days before they get paid. In the meantime, the office needs to pay employees and suppliers.

Medical receivables factoring can provide a much better alternative. Medical Factoring eliminates the payment delay, getting insurance claims paid in as little as 2 days. This streamlines cash, allowing the physician’s office to easily meet its obligations.

It’s simple and works like this:

1. The medical office sends claims to the insurance company.

2. A copy of the claims is sent to the factoring company for financing. 3. The factoring company advances between 60% and 85% of the claims. 4. Once the claims are paid, the transaction is settled.

Asset Based Lending

An Asset Based Loan is a formula-based credit facility often used by companies with high financial leverage and insufficient cash flow. An asset based loan is secured by pledging the borrower’s accounts receivable, inventory, machinery and equipment as collateral for the loan. Companies in the

manufacturing, distribution and service industries are good candidates for an asset based line of credit. When evaluating a potential loan, an asset based lender always focuses on the ability to monitor the collateral and the strength of the collateral as the source of repayment for the loan. This is different from a “traditional” bank loan where the credit decision is based on the current financial strength of the business.

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Merchant Insta Pay

Our company also specializes in providing online digital Merchant account payment systems for non-bankable and high risk vendors. Don’t let good credit, bad credit, no credit or type of business stand in the way of processing real time online or terminal payments today.

When the name brand credit card companies say NO, we typically say YES and vendors from around the world are seeking our resources to quickly process their orders.

Through our patented peer to peer, no hold back cash box payment system you are just minutes away from setting up your own secure, universal, private online digital Merchant Account payment system – and best of all there are no contracts to sign, no credit limits, limited paperwork and

zero implementation fees in the United States and Canada.

Imagine what it would feel like to accept any form of payment for any product or service without waiting for your money? Well now you can!

The History of Factoring

Recorded history reveals that the concept of turning future payments into cash (or cash equivalents) dates back thousands of years. Much like today, the need for liquidity, or “cash” to pay everyday expenses has always been a great need. Think of the days when merchants would travel the seas in search of various treasures. Ships would be filled with those in need of food and necessities to survive. Financiers offered payments against future rewards as a means to earn a return on their investment. This financing was an integral part of the success in establishing world trade. Thus, the concept of factoring was born, dating back some four thousand years.

Prior to the 1980’s, factoring was used primarily in the garment, textile, and furniture industries – typically only available to larger companies. Entrepreneurial funding companies, coupled with the creation of a consultant (broker) network, changed all this in the late 1990’s.

Factoring is now a widely-accepted financing alternative. Due to the credit crisis and economic meltdown of years gone by, factoring has quickly become one of the alternative financing industries tools of choice.

Today, businesses are holding onto their cash for as long as they can. This means that suppliers to these businesses are becoming “stretched out” with regard to payments.

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The Facts about Factoring

A recent study conducted by the Credit Research Foundation found nearly 80% of North American companies reported that the economy has had a direct negative effect on their business with a majority citing tightening cash flow and a slowdown in customer payments!

In addition:

 33% say the financial crisis is straining their availability to gain working capital.  67% report that they are experiencing a general slowdown in customer payments.  68% say their customers are experiencing tightening of bank financing.

 67% report tightened A/R collections.

Companies that were accustomed to receiving payment on their invoices in 30 days are faced with the reality that the payment cycle is now surpassing 60 days or longer. The national average for invoices to be paid across North America is a whopping 73 days! The trickle-down effect of this is tremendous. Without the needed cash flow, many companies are forced to make

tough decisions. Employees are being let go (no money for payroll), supplier payments are delayed (resulting in delayed or cancelled shipments for future orders), delaying payment of operating expenses (negatively affecting the company’s credit history which will adversely affect their purchasing power), payment of taxes are delayed

(resulting in judgments and tax liens) and the list goes on.

Understanding the Trends

So, what drives the economy? Is it interest and/or mortgage rates? No, they are currently hitting record lows and the economy is still bad.

Simply said, when consumers spend their money, the economy thrives. Therefore, the question is: why are consumers choosing to save their money as opposed to spending it?

We have all heard the term “Baby Boomers”. “Baby” now seems to be a misnomer as over 10,000 “boomers” turn 65 each day – and this trend will continue for the next 15 years! So, how does this have an effect on our economy?

Statistics show an individual’s highest earning capacity is between the ages of 35 and 55. Spending is typically concurrent with earnings – the more you make, the more you spend. The opposite is true as well. The less you make, the less you spend. Since the “boomers” are earning less, they are spending less.

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In addition, the unemployment rate was recently higher than it has been in decades. The average unemployed person has been out of work for at least 9 months.

Finally, throw the real estate and stock market disasters into the mix and you have the recipe for an economic collapse. The demand for credit has shrunk amongst consumers in spite of the stimulus plan and bank bailouts.

2010 revealed the single biggest drop in the past 60 years in demand for credit and still remains low today. People and businesses are more concerned with hunkering down and paying their debts than they are with borrowing for growth and expansion. Banks are “circling the wagons” in an effort to stabilize their existing loan portfolios, and are turning down loan applications at an unprecedented rate.

So what are we left with?

Our economies are driven by small business. Banks are not lending and we are witnessing the potential demise of the small business - As small businesses decline, employment declines and consumer

confidence tumbles.

However, there is a solution!

When cash flow is tight, where do companies turn? Traditionally, this answer has been to banks. Pick up today’s paper, listen to the news, research the Internet and you will see that banks are NOT the solution. Banks are looking to the federal government (remember the stimulus plan) for help in over-coming astronomical losses due to loosened credit policies in the past. Their directive is to protect their existing portfolios, while becoming extremely conservative in providing new loans (if any).

Factoring has now become the “financing tool of choice”. And in many cases the only choice.

So, what exactly is factoring?

The definition of Factoring is simple: The purchase of business-to-business (B2B) or business-to- government (B2G) accounts receivable (invoices) for products delivered or services that were rendered in the past, at a discount.

Factoring is NOT A LOAN and NO INTEREST is charged. It is simply the discounted purchase (sale) of a company’s non performing asset (accounts receivable – an invoice that is paid over time)

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Is Factoring Just for a Few Select Industries?

Factoring related transactions are somewhat vast. By definition, invoices must be from one business to another business or, from a business to the government. With this in mind, the number of potential transactions is HUGE! At the time of publishing this eBook, there were over 55 million small businesses scattered all across North America (United States and Canada). This number is sure to increase due to new startup companies that have sprouted up recently, mainly as a result of those individuals that have been downsized and subsequently have started their own businesses.

Ask yourself this question: “How many businesses do you know of that provide a product or service to another business or the government”? Are you one of them?

Now ask yourself: “How many of those businesses are getting paid in over 30 days? 45 days? 60 days? 90 days?” And what do your books look like?

Because of all the financial benefits of Factoring, its popularity is growing at phenomenal rates.

Since just about everything in a factoring transaction is centered on an invoice, let’s see what a typical invoice may look like (this is very basic accounting 101, but just for the record)….

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There are a number of components that make up an invoice. Let’s quickly highlight and describe these components.

 Bill To: Identifies the customer or the payee information in the sales transaction

 Description: Identifies the products that were manufactured and shipped, products that were redistributed or services that were rendered.

 Quantity: Identifies the number of units of the products that were shipped or services that were rendered.

 Unit Price: Is the individual price of each product that was shipped or the services that were rendered.

 Line Total: Is calculated by multiplying quantity times the unit price.

One of the most important components that make up an invoice is the TERMS of payment. Typical terms in business are: 2% 10/net 30 days which means if the customer pays for the invoice within 10 days they will receive a 2% discount off the face (total value) of the invoice. If the customer pays for their invoice after ten days, they are required to pay the total (face value) of the invoice…

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This is fundamental for the factoring industry. The longer the terms (time to receive payment), the larger the ultimate burden on cash flow…

How Factoring Works

First, let’s define the participants in any factoring transaction:

• Payee (Seller of invoices):

The Payee, also referred to as the “Seller”, is the company that has manufactured a product and shipped that product or rendered a service. In the factoring process, we call the “seller” a client. That company will now create an invoice for a sales transaction that has taken place.

• Buyer (factor):

The buyer (factor) is the company that supplies the capital in a factoring transaction. The factor is commonly referred to as a funding source that buys invoices at a discount.

• Payor (also known as the debtor or customer):

The payor is a company (customer) or government agency that makes payments against an invoice of the Payee, the “seller” (client).

The factoring process begins when a Payee (client) is introduced to a Buyer (Factor/Funding Source). The Buyer then makes their funding decisions based on whether or not the Payor has the credit strength to pay for the invoices and how long they typically take to pay for their invoices. Factors will also consider its ability to verify the delivery of products and/or services rendered to a Payor.

Two Key Disbursements

There are two key disbursements that are associated with a factoring facility. The first disbursement is called an “Advance” and the second disbursement is called the “Reserve”.

1. Advance – the client receives up to 90% of the face value (total) of the invoice when the invoice

has been purchased by the factor. The advance rate depends on the “risks” involved with the transaction – the greater the risk, the lower the advance.

2. Reserve – the client receives the reserve balance once the customer has paid for the invoice –

less the discount fee charged by the factor.

For example - if the invoice is $1,000.00 and the “Advance” has been set at 75% by the factor, then the “Reserve” would be 25% (100% of invoice - 75% = 25%). The reserve is released once the invoice has been paid by the customer (debtor).

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Factoring Terms

To help you better understand how Factoring works, lets define some of the most commonly used terms that are used in a Factoring Transaction:

1. Invoice - a business document defining the amount owed for a service rendered or product sold and delivered. An invoice can also be referred to as a legal document, or a short term note to the customer, when terms are listed on the invoice.

2. Accounts Receivable - an invoice (or group of invoices) that remain unpaid and is due to be payable in the future.

3. Due Diligence - The process of evaluating the risks involved in funding a client. In factoring, this typically includes a number of actions including: review of financial statements, credit reviews on the client’s customers, and payment history on past invoices.

4. Client – Once a company commits to a funding source (typically by signing a legal document called a “Factoring and Security” agreement), they become a client.

5. Customer/Debtor – the entity that has received a product or service and is now indebted to the client for payment. In most alternative financing scenarios, this must be a credit approved business or some form of public entity (government).

6. Factor – a commercial entity that provides alternative financing options to various business. Factors specialize in purchasing business-to-business or business–to-government accounts receivable at a discount.

7. Consultant/Advisor – typically a trained individual that acts as a “match maker” in a factoring transaction. Simply put, the consultant finds and introduces a prospect that is in need of financing to a funding source, such as a factor, through their extensive network.

8. Discount Fee - the fee charged by the factor. The discount fee is typically charged on the face value (total) of the invoices and increases as the invoice ages…

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How do Factors Make Money?

When entering a discussion on how a factoring (funding Source) company makes money, you must first embrace the idea that a factor is not a “lender.” This is a grave error perpetrated by many companies who are considering using factoring as a tool to accelerate cash flow in their business.

Why is this important, you ask?

It is important for a few reasons:

Annual Percentage Rate: We are all conditioned to believe the only way to get money is through a

bank. After all, our first account was a passbook savings account at a bank. When we grew older and it was time to get a checking account, we secured this at a bank. To further the example, we ask: Where does the business owner turn to get a business checking account or a loan for his/her company? One thinks that the only place to get these things is… at a bank. Therefore, when discussing financing, many people will equate factoring to a bank.

We must emphasize again that banks charge interest on money they lend while Factors buy invoices

at a “discount fee”.

No Lending; Different Regulations: Since factors are actually purchasing assets at a discount and not

lending money, they are not regulated in the same way that banks are. This flexibility allows factors to pursue funding opportunities that are typically avoided by the banks (eg… new start ups, companies with historic losses or liens against them).

When a bank says “No,” why will a factor say “Yes”?

Said another way, why would a factor fund a company that a bank won’t lend to? When a bank makes a loan to a company, they are relying on that

company’s ability to pay back the loan.

They look to hard assets like property, equipment, inventory and cash as security in the event the company defaults on the repayment of the loan. However, when a Factor purchases an invoice at a discount, they are simply relying on the client’s customer/debtor to pay the outstanding invoices, in full.

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To summarize:

Factors take a different approach to commercial financing. Banks are making their credit decisions based on the strength of the borrower’s assets. Factors make their credit decisions based on the credit strength of the Borrower’s customers.

How do factors protect themselves against nonpayment (or short payment)

of invoices?

The following is an example to demonstrate how this works: Invoice Amount: $1,000.00

---

Amount Advanced to Client = 80%: $800.00 Amount Held In Reserve = 20%: $200.00

---

30 Days Later:

Amount paid by client’s customer: $1,000.00 Advance amount back to factor: - 800.00

Discount Fee = 2.5% of invoice: - 25.00 ---

Amount rebated to client: $ 175.00

During the transaction, the amount held back in Reserve serves to protect the factoring company against any potential credit offsets taken by the client’s customer (debtor). If there were a credit taken

by the client’s customer, that amount would be subtracted from the “reserve” before rebating the remaining monies to the client.

As you can see, in total, the client received an advance of $800 and a reserve rebate of $175 for a total of $975. The factor received a discount fee of $25 for the service. Now imagine a factor managing hundreds of thousands of invoices at any given time, all of which are being purchased at a discount. The yield can certainly add up for the factor…

Best of all, the client is getting the use of working capital which will make them stronger. A stronger client

creates more invoices. In many cases that client will grow and factor all of their invoices.

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Factoring Case Studies

Following are some real life case studies that will serve to better illustrate the benefits of factoring.

DISCLAIMER:

Rates and reserves can vary greatly from client to client, as we’ve discussed. As such,

each applicant is evaluated on a case by case basis…

CS #1:

Health Care Staffing

First, we must define the players in the transaction.

 Payee – Health care staffing company providing nurses to hospitals on a temporary employment basis (client)

 Buyer – ”Funding Source” (factor)  Payor – Hospitals (customer)

Background:

The health care staffing company sought out a Factoring Consultant after being turned down by a local bank for funding. The Consultant introduced and educated the staffing company on the benefits of factoring.

The current situation:

Client was providing temporary nursing services to various hospitals. Client’s major operating expense was in meeting the payroll demands of its temporary workforce (nursing) on a weekly basis. Client was receiving payment on invoices to hospitals in 60 days. However, the client had the ability to “cash flow” these expenditures out of current working capital.

Client received a phone call from a very large hospital informing them they had been awarded a

contract for 50 nurses to be employed 40 hours per week. The hospital was mandating 60 day payment terms on all invoices.

The Math:

 Client (health care staffing company) pays its nurses (on average) $24.00 per hour.  Client charges its customers (on average) $36.00 per hour for hours worked.

 Hospital pays its invoices for services provided by the client in eight weeks or every 60 days.  Client must pay nurses weekly for hours worked.

In order to fulfill this new contract, the client is faced with the reality of having to come up with $384,000 in cash to cover the payroll burden:

50 (nurses) X $24.00 (average hourly pay) x 40 (hours worked per week) x 8 (number of weeks for hospital to pay) = $384,000…

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The Issue - The Bank:

Client approaches the bank to request a loan for $500,000. Bank declines the loan due to “insufficient collateral” – only asset is accounts receivables. In addition, the health care staffing company had only been in business for 16 months and did not have enough financial history.

The Solution:

Client is introduced to Factor. The Factor reviews the credit history of the payor (hospital) and determines it to be a solid credit risk. The Factor agrees to advance 90% against invoices purchased.

Keep in mind, the $24.00 per hour was not the amount that the client charged the hospital. If it were then the client would not earn a profit. In this transaction the client charged the hospital $36.00 per hour, so the client earned $12.00 per hour (gross profit) for each hour the nurses worked ($36.00 amount charged to hospital - $24.00 amount paid to each nurse = $12.00) 50 (nurses) X $36.00 (average hourly pay) x 40 (hours worked per week) x 8 (number of weeks for hospital to pay) = $576,000

The Factor will “Advance” (first key disbursement) 90% against invoices created: $576,000 X 90% = $518,400.

Note: Keep in mind that Factor will fund weekly based on verified hours worked per nurse. This figure

provides an aggregate amount that is funded over the 8 week period. Since the payroll burden is $384,000, The Factor’s advance of $518,400 is more than enough to cover the payroll and provide additional working capital over the eight week time period. The client now has additional working capital to source out new contracts, and to help meet fixed costs like rent, telephone, utility payments, etc.

A win-win situation!

CS #2:

Sleep Perfect Plus

The Situation:

Sleep Perfect Plus (SPP) is a mid-sized Durable Medical Equipment Company (DME) specializing in sleep disorder equipment for improving sleep for patients with sleep apnea or other sleep deprivation

diagnoses. DME is one of more than 18 segments in the healthcare industry that bill third party payors (eg. Medicaid, Medicare or major insurance companies) for patients the agency treats.

SPP had annual revenue in 2011 of $814,000. The DME agency was started in 2006 and had experienced 20 percent annual growth since then. SPP had been profitable its first two years of

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operation, but in 2010 it lost $463,000 because of mismanagement as well as poor billing and collection problems, that are somewhat common in medical concerns. Their claims were submitted incorrectly and subsequently denied by many of the payors.

To worsen the problem, SPP was not organized sufficiently to resubmit the claim in a timely fashion. Therefore, the company was losing revenue as well as being overstaffed with too many operating sites.

At the end of 2010, “Harold Green”, President of SPP, hired a new chief financial officer that also served as the operating head for the company. The new CFO, “Richard Baker”, began making changes immediately and simultaneously implemented a new marketing plan that he forecasted would triple SPP’s business. By the end of 2010 the billing and collecting problems were corrected, three

unprofitable sites had been closed and business was beginning to increase at an alarming rate. It was alarming due to the fact that the company’s working capital was insufficient to meet the

growing demands created by this recent success. Richard was concerned that if he began turning down referrals he would lose the referring sources permanently. He needed working capital desperately. Richard did not have time to find additional investors and Harold Green was reluctant to give up control of the business which investors might require. The bank was not an option. SPP had a $200,000 line of credit (LOC) with a local bank and the bank was unwilling to increase the line because of the losses the company had incurred in 2010. In addition, the LOC was strangling SPP because it was collateralized by filing a lien on all of the assets of SPP. The bank was unwilling to subordinate to any other lender rendering it impossible for SPP to gain additional working capital.

The Solution:

Richard Baker has been introduced to Medical Claims Factoring by a Factoring Consultant. When Rich submitted SPP’s documents for underwriting, it was a challenge. The documents reflected the story with only projections for 2011 being rosy. SPP’s accounts receivable summary had 20 third party payors. The accounts receivable totaled $1,122,081 with $367,365 aged greater than 90 days. This 32% of total AR was reflective of the problems that Rich had inherited. The positive finding was that SPP’s largest payor was a state agency that contracted directly with SPP. That contract was in addition to Medicaid and payment on that contract was within the 90 day eligibility period for medical receivables. The next challenge for underwriting was to determine the net collectible value (NCV) of the accounts receivable in order to value the new claims going forward and to be able to fund the initial advance from the existing receivables. Medical claims are submitted to the payors on standard forms with codes for the procedures and medical information to justify the charge (known as “usual and

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customary rates” (UCR)). The UCR is generally regarded as “gross charges” or “gross revenue.” The amount the payors remit is generally referred to as net revenue. Advances are made on net revenue or the historical NCV. NCV may be referred to as ENR (estimated net revenue) because it is only an

estimate of what is expected to be paid and is never 100% accurate. The only certainty we have is that the gross charge on the claim will not be paid.

Our next step was to complete an analysis of the historical collections, keeping in mind that SPP had a history of billing and collections issues. When AR analysis was complete the NCV ranged from 15% for the lowest payor and 77% for the highest with a weighted average of 53% of charges being collected. The best news was the highest payor was through the state contract which had the most revenue which helped increase the weighted average. The credit committee disallowed all of SPP’s AR greater than 90 days and agreed to an initial advance rate of 75%. The initial advance of $400,000 allowed Rich to pay off the bank and have $200,000 in working capital to meet the increasing demands of his

successful marketing program.

The Results:

The success was outstanding. Here is a comparison of the 2009, 2010 and 2011 financial statements. Note: 2009 was prior to SPP factoring their claims:

Once Rich had the necessary working capital, he built an extremely profitable business with substantial margins. Without the working capital, SPP would have most likely failed.

In Conclusion

Medical claims factoring is one of the fastest growing segments in the factoring industry and can include:

 Individual or group practices (physicians)  Small rural hospitals – up to 100 beds

 Imaging, ambulatory surgery or rehabilitation centers  Durable medical equipment providers

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CS #3:

Delta Components

The Situation:

Delta Components, Inc. (“Delta”) is a relatively small

distribution company. Delta currently has just over $500,000 in revenues and during the past year Delta enjoyed significant sales growth. While most business owners would be thrilled to experience the growth that Delta has, “Ron Cotton” (Principal), was very concerned that his company’s cash flow status would be unable to keep pace with its sales growth.

The majority of Delta’s customers are strong financially and have a history of paying their invoices on time. However, “on time” these days means 45 to 60 days. Delta pays their employees every week and they must pay their vendors in 30 days. The discrepancy between the time Delta needs to pay their employees and vendors has, and will continue to create a cash flow problem for Delta.

In an effort to meet his internal cash flow needs, Ron has delayed vendor payments resulting in placing his purchasing power at risk. This could result in his vendors implementing more restrictive payment policies (basically, Delta would need to pay faster, if not up front, in order to receive future shipments from the vendors).

This lack of cash flow has also caused Ron to take a pass on a number of significant business

opportunities. In Ron’s mind, it did not make sense to just take on new orders if it meant increasing his inability to pay his vendors on time, and most importantly, hindering his need to pay his employees on time. To better illustrate Delta’s current position, review the following table:

Delta Components, Inc., current financial position (without factoring):

 Yearly Sales $500,000

 Variable costs (70% of sales) $350,000  Fixed Costs $50,000

 Total Costs $400,000

 Gross Profit/Loss (Sales - Costs) $100,000

Note: Ron has calculated that he has lost close to $200,000 in sales opportunities due to the fact that he did not have the cash needed to pay his vendors on time, nor to pay his employees, which were both needed to fulfill on these commitments.

Ron was being forced to make a decision that would dictate the future success or failure of Delta. Find a way to increase the cash flow within the company or continue to turn down future sales/growth opportunities. Ron reviewed his options for improving his cash flow.

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First, Ron reviewed the options that were available to him without seeking financing:

1. Demand more strict payment terms from his customers.

2. Increase the sale price of his products.

3. Negotiate more conservative payment terms to his vendors.

4. Reduce employee cash burdens (e.g., insurance, bonus, wage increases or possible layoffs). 5. Delay his payment of payroll taxes.

After much thought, Ron came to the following conclusions:

Options 1 and 2 were not possible. Demanding his customers to pay their invoices faster was a recipe for disaster as his competitors were offering more liberal payment terms now in an effort to induce his customers to conduct business with them. Raising his prices would position him as unattractive option to his customers. Ron was in a very competitive business, and his customers would simply choose to buy their products from another, less expensive resource.

Option 3 was not possible. His vendors had already placed him on credit hold. Asking them to now give him more liberal payment terms would be counter intuitive.

Option 4 was not possible: Simply put, if Ron were to increase his business, he would need all his employees, if not more, to work for him. In order for him to either keep current or attract new employees, he would have to offer competitive wages and benefits to bring them to Delta.

Option 5 was an option, but, a potential “death blow” to Delta. Avoiding the payment of employee tax burdens to the government is never a good long term solution. Although the impact of not paying the taxes will result in an immediate improvement in cash flow, the long term implications could amount to tax liens and high financial penalties due.

If Ron was unable to “recover” cash by making internal changes to his business, he must now look to outside financing to help him.

Ron viewed his outside financing options as:

1. A line of credit with a bank.

2. Offering ownership (equity) in his company, in exchange for working capital. 3. Factoring Delta’s accounts receivables.

It is necessary to keep in mind that while Ron was considering all options, he was losing orders (daily) with potential customers that may never return.

Ron knew that a line of credit with a bank was not a valid option, as he attempted this in recent memory and knew that he did not have the collateral needed to secure a loan. Ron had been

approached in the past by a few potential “investors”, but this option came at a very high price, as he would have to give up ownership and control of his company in exchange for cash...

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Ron determined that an accounts receivable factoring line of working capital would be the best solution to help strengthen his company’s financial position. This would enable Delta to now accept new orders and to pay both vendors and employees on time. In fact, the acceleration of cash into his business would put Ron into a position of strength with vendors in that he could now be in a position to negotiate early payment discounts.

Ron negotiated a 90% advance with the Factor and a discount rate of 2.5% (per 30 days). Since Delta was now getting paid on average in 60 days, Ron budgeted a discount rate of 5%.

Ron then reconstructed his financial statements by adding the following:

1. The 5% factoring discount rate

2. The projected $200,000 increase in new business 3. Supplier discounts offered for quick pay.

Delta Components, Inc. projected financial position (with Factoring):

Yearly Sales $700,000

(Note: Increase of $200,000 from new orders)

Variable costs (65% of sales) $455,000

(Note: 5% supplier discounts)

Factoring discount fees

(Note: 5% of sales) $35,000

Fixed Costs $50,000 Total Costs $540,000

Gross Profit/Loss (Sales - Costs) $160,000 Additional Profit of $60,000, or 60%!

Therefore, by selling his invoices and ultimately giving a 5% discount to the factor, Delta gained 60% in profits - truly, addition by subtraction!

FAQ’s

How does a factoring company differ from a bank?

Banks examine a company and its personal guarantors in depth. This examination usually requires three years of financial statements, a cash-flow analysis, and collateral appraisals. It can take weeks (and sometimes months) to complete. And, if a business is lucky enough to obtain a line of credit, that line is typically for a fixed amount. This finite borrowing capacity often limits the growth of that

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company. By contrast, our affiliated funding sources focus primarily on the credit-worthiness of a company’s customers. Funding is based upon the strength of the customers. This allows a factoring company to fund start-up businesses and other rapidly growing companies that often find themselves unable to get the hoped-for cooperation from their local bank.

Is factoring the same as a loan?

No. A loan is an extension of credit with an interest rate and a specified payback schedule. Factoring is the purchase of invoices at a discount.

Wouldn’t a bank make more sense?

Possibly, but the credit crisis and financial meltdown has made it virtually impossible for small to mid- sized businesses to obtain traditional forms of financing. However, if a company is able to obtain a line of credit that is large enough to support its growth, then, yes. But most banks won’t provide a large enough line to support high growth businesses. If you are experiencing a steep growth curve, factoring can provide the cash flow you need to support inventory purchases, payroll, marketing and

working capital.

If I have another lender in place can you still help?

Yes. We will either buy out the other lender’s position, or negotiate an inter-creditor agreement with them.

Why haven’t I heard about Factoring before?

To many, factoring is the best-kept secret in financing. In fact, today, more than $70 billion is factored every year across North America. And although it may sound like a new concept, it actually dates back to the 1700s. Factoring is quickly becoming the financing tool of choice due to the recent bank

meltdown.

What types of companies use this type of financing?

All types. Any company selling business-to-business or business-to-government potentially qualifies for factoring.

How will my company benefit from factoring?

Two words: Cash Flow. The Cash Flow Solution can help transform your company into a cash business. As soon as you generate an invoice, you can get paid. Your company’s growth will not be stunted because you do not have sufficient working capital.

Do you offer credit services?

Yes. No more “ship and hope.” Our Factors can act as your own outsourced credit department. Our credit collection services will help you speed up collections and control bad debt.

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How quickly can I get funded?

An initial approval can be received within 5-7 days. Once an account is set up, subsequent funding requests are approved in 24-48 hours.

Do you work with new startup companies?

Absolutely. Our company specializes in helping companies of all sizes to grow and prosper.

If a company has gone through bankruptcy can you help?

Yes. The Cash Flow Solution (CFS) routinely assists companies in these situations get back on the road to profitability.

How Do We Compare?

✓ Quick & Convenient

✓ Stimulates Growth ✓ Cash within 24 hours ✓ Unrestricted Use of Funds ✓ No Separate Loan Applications ✓ No Long Term Contract to sign

✓ Unlimited Capital – No Maximums

✓ Create Cash without Debt – No liability ✓ Increase Sales & Fulfill Purchase Orders ✓ Relies on Creditworthiness of Customers ✓ Creates Continuous Predictable Cash Flow

Most of us are aware of some of the road blocks encountered in going to a bank to borrow working capital. As every business owner knows, sales alone do not measure the profitability of a company.

When the banks say NO – we typically say YES!

How to Get Started:

Print out and complete the Client Profile Form on the last page (document page 24) and either scan and email it to the address below, or fax it to (800) 891-0680, or simply go to the website below and fill out the secure online version. We’ll get back you promptly.

Thank You!

CFS Factoring

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4 Ways to Minimize, if not Eliminate, the Cost of Factoring

1. Fund quicker-paying customer (debtor) invoices first:

Since Factoring discount fees are largely based on the aging element of invoice recovery, clients who wish to receive their advance quicker and for the least amount of cost should consider Factoring the better-paying customers first.

2. Delay funding certain invoices up to 30 days:

For example, if a customer habitually pays their invoices in 60 days, delay Factoring the invoice for 30 days. This would result in a lower, 30 day discount as opposed to a 60 day discount fee.

3. Factor only as much cash as needed:

Only Factor the amount of cash required to run your business, cover expenses and fulfill your needs. Keep track of forecasts and projections and fund accordingly. The good news is that Factoring allows such flexibility and can be used on a daily, weekly, monthly or even seasonal basis. Once a client is approved and the file is set up, cash can be available in as little as 24 hours thereafter!

4. Early payment supplier discounts:

Negotiate a 5% or 10% early payment credit and then pay COD with upfront cash from the funding received from Factoring!

A few other benefits:

You will also be able to use this increased cash flow to increase sales and fill larger orders. As such, when you consider supplier discounts, along with increased sales, it’s easy to see how Factoring has become the funding method of choice for many savvy companies. It provides cash without debt, increased purchasing power, improved credit ratings and financial statements, and is a great, on-demand tool for business growth. It’s also a legitimate business expense for tax purposes.

Additionally, businesses can benefit from the many administrative services that come with Factoring, at no additional cost, saving on overhead expenses. For example, clients can use our credit services to check the creditworthiness of new customers before making a commitment. Some other included services could include:

 Collections services (these would be “soft” services as we are not in the “collections business.”)

 Consultations

 Invoicing

 Payroll

So, as you can see, Factoring can be a valuable financial tool for businesses that are experiencing cash flow issues and/or want to grow, or even survive. So, what’s your situation? Let’s talk!

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The Cash Flow Solution Client Profile Form

Organization:

EXACT LEGAL NAME: _______________________________________ D/B/A (IF APPLIC): _____________________ STREET ADDRESS: _______________________________________________________________________________ CITY, STATE, ZIP or CITY, PROVINCE, POSTAL CODE: ____________________________________________________ COUNTY: _________________________ STATE or PROVINCE OF REGISTRATION: ___________________________ CONTACT NAME: _______________________________ EMAIL ADDRESS: _________________________________ PHONE (w/area code/ext): __________________________________ FAX: _______________________________ Check appropriate business entity: CORPORATION LLC PARTNERSHIP SOLE PROPRIETOR TAX ID # (MANDATORY): _____________________________

BUSINESS DESCRIPTION: _________________________________________________________________________

Officers - Business Information:

PRESIDENT: _____________________________________ VICE PRESIDENT: _______________________________ ACCOUNTANT: _________________________________________ PHONE: ________________________________ ATTORNEY: ____________________________________________ PHONE: ________________________________

Receivable & Contract Information:

AVERAGE SIZE OF INVOICE: $______________ ESTIMATED MONTHLY BILLING AMOUNT? $___________________ ARE COMPANY TAXES UP TO DATE?  Yes  No IF NO, HOW MUCH DUE? $________________________

IS A PAYMENT PLAN IN PLACE? Yes  No ARE RECEIVABLES PLEDGED AS SECURITY ELSEWHERE? Yes  No

IF YES, WITH WHOM? ___________________________________________________________________________ The Undersigned warrants that the above information is true and correct.

All information and documentation will be held in the strictest confidence by The Cash Flow Solution and our Funding Source partners and will not be used for any other purpose other than to determine eligibility for funding.

Signature: ___________________________________________

Printed Name: ________________________________________ Date: ____________________________

Factoring Facts Revealed

Factoring

Facts

Revealed

Everything you need to know about the Factoring

Industry and how it could benefit your business!

TheCashFlowSolution.com

First, a little about us…

Why do business with us?

Thank you

Factoring Facts Revealed

Table of Contents:

Chapter:

Page:

Did You Know...

Regardless of size or industry, cash flow management is repeatedly cited as the key to

the lifeblood of any business. The biggest challenge is sourcing capital to fund daily

operations. Even those companies that are doing well often find themselves out of luck

when it comes to finding the necessary capital to meet demand, much less to take

advantage of growth opportunities. The Cash Flow Solution makes the daunting task of

finding cash flow easier for your business, and without having to lose control or go

through a lengthy (often fruitless) application process.

There IS a Solution – with The Cash Flow Solution!

✓ Debt Free Financing – up to $100,000.00 - $5,000,000.00.

✓ Don’t let Good credit, Bad credit or No credit stand in your way.

✓ Simple Process, Flexible and ideal for non-bankable businesses.

Alternative Financing Solutions

Accounts Receivable Funding:

Without the needed cash flow, companies are forced to make tough decisions:

Purchase Order Funding:

Medical Factoring:

Asset Based Lending

Merchant Insta Pay

The History of Factoring

The Facts about Factoring

Understanding the Trends

However, there is a solution!

So, what exactly is factoring?

Is Factoring Just for a Few Select Industries?

How Factoring Works

First, let’s define the participants in any factoring transaction:

Two Key Disbursements

Factoring Terms

How do Factors Make Money?

Why is this important, you ask?

When a bank says “No,” why will a factor say “Yes”?

To summarize:

How do factors protect themselves against nonpayment (or short payment)

of invoices?

Factoring Case Studies

DISCLAIMER:

CS #1:

Health Care Staffing

Background:

The current situation:

The Math:

The Issue - The Bank:

The Solution:

CS #2:

Sleep Perfect Plus

The Situation:

The Solution:

In Conclusion

CS #3:

Delta Components

The Situation:

Delta Components, Inc., current financial position (without factoring):

First, Ron reviewed the options that were available to him without seeking financing:

After much thought, Ron came to the following conclusions:

Ron viewed his outside financing options as:

Ron then reconstructed his financial statements by adding the following:

Delta Components, Inc. projected financial position (with Factoring):

FAQ’s

How does a factoring company differ from a bank?

Is factoring the same as a loan?

Wouldn’t a bank make more sense?

If I have another lender in place can you still help?

Why haven’t I heard about Factoring before?

What types of companies use this type of financing?

How will my company benefit from factoring?