Presentation Title - Graber Associates

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Presentation Title - Graber Associates Powered By Docstoc
					                                 Sarsha Adrian
                             Senior Consultant
                             Graber Associates

TMANE Annual Meeting
May 5th 10:45- 12:00 Session 505
   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
   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 today’s credit-restricted market,
    factoring is mainstream.




                         (C) Graber Associates LLC 2011
   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
   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
   Merchants who accept credit cards
   Payday loans

   Both have different “clients” and
    “customers” but concept the same




                         (C) Graber Associates LLC 2011
   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




                              (C) Graber Associates LLC 2011
   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
   Need immediate cash flow to fund growth,
    make payroll, etc.
   Smooth out cash gaps
   Want to build up company cash reserves
   Eliminate collection hassles
   Don’t want more debt on balance sheet
   Don’t want to dilute company equity
   Can’t get or wait for bank financing



                         (C) Graber Associates LLC 2011
   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
Time Value of Money
Ø Given the choice between receiving $100
  today or $100 next year, the obvious
  choice is Today. Why?
Ø Inflation – “eats away” at purchasing power
Ø Delay - you can’t put the money to work
  earning interest or a return on investment




                        (C) Graber Associates LLC 2011
   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



                          (C) Graber Associates LLC 2011
Fees and Rates Calculation

Present Value of a Payment




                             (C) Graber Associates LLC 2011
Factor 1                                 Factor 2
   Advance 80%                              Advance 85%
   Discount 3% for first 30 days            Discount 2% for first 15 days
   1% for every 10 additional days          1.5% for every 15 additional
   Annual return = 3% x 365/30 =             days
    36.5%                                    30 day discount 3.5% = $3,500
   Monthly commitment for 1 year of
                                             30 Day Return %
    $100,000 = $3,000 per month
                                              $3,500/$85,000 = 4.1177%
   Discount / Advance = Monthly
    Return on Advance amount ($80K)
    = 3.75%                                  APR: 4.1177% x 365 /30 =
   APR: 3.75% x 365/30 = 45.625%             50.00987%




                                       (C) Graber Associates LLC 2011
Large Corporate
and                                         130,000
Middle Market
$10+ Million

High End Small Business                     121,000
$5 - 10 Million

Small Business
$1 - 5 Million                              1.4 MM

Micro Business                              6.2 MM
$50,000 - $1 Million


SOHO/ Self-Employed                         16.8 MM
Revenues vary




           (C) Graber Associates LLC 2011
   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
Ø Spot Factoring            Ø Auction Sites
  Ø Single invoices                 Ø Receivables Exchange
Ø Online Factoring                  Ø DebtX
  Ø Lower rates             Ø Business-to-
  Ø No minimums               Business
  Ø 100% cash upfront               Ø TradePay
  Ø Easy signup             Ø Bank Solutions
  Ø No non-payment                  Ø Asset-based lending
    insurance
  Ø Small invoice amounts
  Ø INZAP Factoring
  Ø Facteon


                            (C) Graber Associates LLC 2011
   Security Guard Company
   Oil Well Service Company
   Electronics Importer
   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)
   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
   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.)
   Results:
    ◦ Cost of factoring started at about 4% of sales and is
      currently at 2% of sales
    ◦ Cemented client’s reputation with large customers
    ◦ Fewer resources expended on unnecessary
      infrastructure (employees, larger office space)
   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
   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
   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!
   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
   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
   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
   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
   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
   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)
   http://www.factoringresources.org
   http://www.factoringcompanies.org
   http://www.americanfactoring.org/Links.asp




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




                         (C) Graber Associates LLC 2011
Questions?




       (C) Graber Associates LLC 2011
      Thank you!



Sarsha Adrian
Senior Consultant
Sarsha@graberassociates.net


             (C) Graber Associates LLC 2011

				
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