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Sarsha Adrian Senior Consultant Graber Associates TMANE Annual Meeting May 5 th 10:45- 12:00 Session 505

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Founded in 2002 Financial Services and Technology Markets Experienced subject matter experts Research, Marketing Strategy & Execution, and Public Relations Offices in Boston, Burlington, London, New York (C) Graber Associates LLC 2011

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Part of the trillion-dollar Cash Flow Industry A simple, untapped channel of wealth Factoring involves the buying and brokering of a company's accounts receivables In todays credit-restricted market, factoring is mainstream. (C) Graber Associates LLC 2011

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Practiced for centuries Romans sold promissory notes at a discount Factors financed the new world Today, $150 billion dollar industry Better known in Europe than in U.S. (C) Graber Associates LLC 2011

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Businesses sell accounts receivable (invoices) to Factors for cash discounted price, based on level of risk Effective management of receivables Boosts company profitability (C) Graber Associates LLC 2011

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Merchants who accept credit cards Payday loans Both have different clients and customers but concept the same (C) Graber Associates LLC 2011

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Factor Basics Factors rates of return far superior to those of traditional investment vehicles Unregulated business, can charge market rates Assume the risk of collection Factors must be aware of the creditworthiness of their clients customers Those customers become the factors debtors

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Client (seller) Customers (debtors) Account receivable (invoices) Advance (% of invoice paid to client) Reserve (% of invoice held by Factor) Discount Rate (% amount charged by funding source for use of money) Recourse / Non-recourse Contract period Fees (services, credit) (C) Graber Associates LLC 2011

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Need immediate cash flow to fund growth, make payroll, etc. Smooth out cash gaps Want to build up company cash reserves Eliminate collection hassles Dont want more debt on balance sheet Dont want to dilute company equity Cant get or wait for bank financing (C) Graber Associates LLC 2011

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Flexible and powerful strategy to improve cash flow Remember the Time Value of Money Receivables can be monetized 60% of business cash is tied up in accounts receivable (Payments) Average days sales outstanding (DSO) across all industries is 65 days (C) Graber Associates LLC 2011

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Given the choice between receiving $100 today or $100 next year, the obvious choice is Today. Why? Inflation eats away at purchasing power Delay - you cant put the money to work earning interest or a return on investment Time Value of Money (C) Graber Associates LLC 2011

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Factors Fees and Rates Base discount for the first few days Initial 3% Incremental discount for following days 1% for every additional 10 days Large factors also require application or due diligence fees 1% up front Also billing fees

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Present Value of a Payment Fees and Rates Calculation (C) Graber Associates LLC 2011

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Factoring Examples Factoring Examples Factor 1 Advance 80% Discount 3% for first 30 days 1% for every 10 additional days Annual return = 3% x 365/30 = 36.5% Monthly commitment for 1 year of $100,000 = $3,000 per month Discount / Advance = Monthly Return on Advance amount ($80K) = 3.75% APR: 3.75% x 365/30 = 45.625% Factor 2 Advance 85% Discount 2% for first 15 days 1.5% for every 15 additional days 30 day discount 3.5% = $3,500 30 Day Return % $3,500/$85,000 = 4.1177% APR: 4.1177% x 365 /30 = 50.00987%

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(C) Graber Associates LLC 2011 16.8 MM Large Corporate and Micro Business $50,000 - $1 Million Middle Market $10+ Million SOHO/ Self-Employed Revenues vary Small Business $1 - 5 Million High End Small Business $5 - 10 Million 6.2 MM 1.4 MM 121,000 130,000

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Many large factors service large corporate clients Metro areas: check the Yellow Pages Minimum commitment of $100,000 + per month GE Capital, CIT Regional factors Riviera, Millennium, LSQ, Gateway, Bibby Small local factors Independent investment businesses interested in short- term financing Web New exchanges (C) Graber Associates LLC 2011

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Spot Factoring Single invoices Online Factoring Lower rates No minimums 100% cash upfront Easy signup No non-payment insurance Small invoice amounts INZAP Factoring Facteon Auction Sites Receivables Exchange DebtX Business-to-Business TradePay Bank Solutions Asset-based lending

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Security Guard Company Oil Well Service Company Electronics Importer

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Provides security guards for large retailers that have parking lots (Home Depot, e.g.) Locations in NY, NJ, PA, and MD Closely held $20 million in annual revenue (approximately)

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Business challenges: Started small - $20,000/month in sales HUGE initial growth curve payroll was main problem Could not access traditional financing (i.e., bank) to handle growth Inexperienced management No administrative infrastructure

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Factoring Provided: Straightforward and fast underwriting approval 5-10 business days at most Ability to fuel extreme growth curves in this case 2,500% in year one Mailing and collection of invoices Cash posting of factored invoices Online, real-time reporting on account metrics (turn, credit limits, ledger, etc.)

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Results: Cost of factoring started at about 4% of sales and is currently at 2% of sales Cemented clients reputation with large customers Fewer resources expended on unnecessary infrastructure (employees, larger office space)

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Provides process for capturing more oil from the well during production Family owned business Operates in TX, LA, AR and PA Annual revenue growing to about $30 million

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Business Challenges: Need to capture business by being ready when called DSO runs approx 65 days extreme cash flow pressure Capital equipment intensive business Lack of good documentation for completion of service

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Factoring Provided: Access to instant cash - zero down time between jobs Solution to long DSO of 65 days Cash reserves to rent or purchase capital equipment needed to complete jobs Streamlined document signoffs and invoice submission Very positive unanticipated effect!

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Results: Cost of factoring started at 7% of sales and decreased to 5% of sales Better relationship with customers resulted in additional business Can focus on what they do best, rather than what they hate doing chasing invoices

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Imports consumer electronics goods from China Ownership diluted among approximately 100 investors Customers are big-box retailers Annual sales unpredictable seasonal and based on current market needs

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Business Challenges: Unpredictable sales cycle One PO could range from $100K to $3M PO financing and factoring needed to complete on- time delivery Desk, phone, and laptop the only infrastructure in the U.S. Concentrated credit exposure

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Factoring Provided: Flexibility to accommodate wild sales fluctuations A partner with a PO finance company to complete order Outsourced A/R management Credit approval Credit risk of customers

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Results: Cost of factoring ranged between 3% and 5% of sales (depending mostly on DSO) Now able to execute on POs without PO financing and factoring (OPM) Better assessment of credit risk Protection from credit risk

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Factoring is a financial tool and like all tools it has its place Cost of factoring includes more than just capital there are other services involved Risk tolerant (underwriting of client) Quick Limited asset filing Short-term (6-12 months usually)

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http://www.factoringresources.org http://www.factoringresources.org http://www.factoringcompanies.org http://www.factoringcompanies.org http://www.americanfactoring.org/Links.asp http://www.americanfactoring.org/Links.asp (C) Graber Associates LLC 2011

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Many more options Increased competition has lowered rates More flexible, shorter term contracts More mainstream thinking (C) Graber Associates LLC 2011

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Questions?

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(C) Graber Associates LLC 2011 Thank you! Sarsha Adrian Senior Consultant Sarsha@graberassociates.net