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SPRING CONFERENCE ISSUE Powered By Docstoc
					A PublicAtion of the internAtionAl fActoring AssociAtion




                 SPRING 2011 • VOL 13/ No. 2




                                Spring
                                ConferenCe
                                iSSue




                                  ALSO INSIDE:
                                  Increasing Liquidity in the
                                  Automotive Supply Chain
                                  Purchasing Canadian
                                  Accounts Receivable
                                  P.O. Financing on Trial
www.healthcapitalinvestors.com
                                                                                                                                              SPRING 2011 • VOL 13 / No. 2



                                                                         Resiliency, GRowth and new leadeRship
                                                                         at Gulf coast Business cRedit
                                                                         An interview with Wade Hladky

                                                                         incReasinG liquidity in the automotive supply chain
                                                                         By Leigh Lones

                                                                         d.c. dininG: somethinG foR eveRyone in ouR nation’s capital
                                                                         By Allen E. Frederic, Jr.

                                                                         new centuRy financial vs. olympic cRedit fund
                                                                         By Darla Auchinachie

                                                                         what’s new at ifa


                                                                         puRchasinG canadian accounts ReceivaBles
                                                                         what should u.s. factoRs consideR?
                                                                         By Martin Fingerhut

                                                                         puRchase oRdeR financinG “on tRial”
                                                                         By Richard Eitelberg, CPA




columns
       an inside look q&a with sheRm RoBinson

       sales and marketing sales manaGement: the aRt
       of eveRythinG
       by Thomas G. Siska

       legal factor leGal factoRs
       by John A. Beckstead, Esq.

       small ticket factor client Gall and diveRsion of funds
       by Jeff Callender




 ADVERTISER INDEX
 3i Infotech ....................................................................................38   Harborcove Healthcare Finance.............................................. 8
 Bayside Business Solutions ....................................................... 5                 Hartsko Financial ...................................................................... 12
 Boston Financial & Equity ...................................................... 15                  Health Capital Investors ...........................Inside Front Cover
 Bourget & Associates .................................................................. 9            IFA ....................................................................................... 25 & 37
 Capital Software ........................................................................... 6       King Trade Finance ................................................................... 14
 Centurion Credit Management...............................................17                         Republic Business Credit ......................................................... 21
 Corporation Service Company ...............................................39                        RiskFactor Solutions ................................................................. 16
 Factor Fox .................................................................................... 37   RMP Capital Corp. .....................................................................20
 First Corporate Solutions ....................................... Back Cover                         TAB Bank ....................................................................................... 9
 First Line Funding ..................................................................... 18          Tax Guard Monitoring Service ...............................................23
 Gulf Coast Business Credit ......................................................35

                                                                                                                                         The Commercial Factor | SPRING 2011 3
     from the executive director

                              “Beyond work and love, I would add two other
                              ingredients that give meaning to life. First,
                                                                                                     THE INTERNATIONAL
                              to fulfill whatever talents we are born with.                        FACTORING ASSOCIATION
                              However blessed we are by fate with different                      2665 Shell Beach Road, Suite 3
                              abilities and strengths, we should try to develop                     Pismo Beach, CA 93449
                              them to the fullest, rather than allow them                                800-563-1895
                              to atrophy and decay. We all know individuals
                              who did not fulfill the promise they showed in                          EXECuTIVE DIRECTOR
                                                                                                         Bert Goldberg
                              childhood. Many of them became haunted by
                              the image of what they might have become.                                  PuBLISHED By
                              Instead of blaming fate, I think we should accept                    The International Factoring
                              ourselves as we are and try to fulfill whatever                              Association
                              dreams are within our capability.                                   EDITOR/DESIGN & GRAPHICS
                                                                                                   R&W Publishing Associates
                              Second, we should try to leave the world a better                   Lisa Rafter, Executive Editor
                              place than when we entered it. As individuals, we                     lisarafter@rw-assoc.com
                              can make a difference, whether it is to probe the                   Abigail Sutton, Senior Editor
                              secrets of Nature, to clean up the environment                      abigailsutton@rw-assoc.com
                              and work for peace and social justice, or to                              ADVERTISING SALES
                              nurture the inquisitive, vibrant spirit of the young                  R&W Publishing Associates
                              by being a mentor and a guide.”                                        lisarafter@rw-assoc.com

                              Dr. Michio Kaku – Physicist / Futurist                                    ADVISORy BOARD
                                                                                                          Paul Cottone
                                                                                                    Allied Affiliated Funding
        Dr. Kaku is one of the keynote speakers at this year’s Factoring Conference.                       Phil Cohen
        Although the tie between factoring and theoretical physics may not be obvious,                  PRN Funding, LLC
        I think that his insights into what the future may hold should be of interest to
                                                                                                          Tony Neglia
        everyone. Having the opportunity to hear about where business and technology
                                                                                               Stonebridge Financial Services, LLC
        might be headed from someone as knowledgeable as Dr. Kaku is a rare opportu-
        nity and one that should be of interest to everyone.                                             Oscar Rombola
                                                                                                       ITC Invoice to Cash
        Back to the routine, with another conference approaching, the IFA is happy to
        report that the previous year has been extremely successful and rewarding. The                    Tim Valdez
                                                                                                  Transportation Alliance Bank
        IFA has continued our expansion and we’ve experienced a net growth of approxi-
        mately two new members per month, bringing us up to about 375 corporate                           Debra Wilson
        members.                                                                                      Vertex Financial, Ltd.

        The American Factoring Association (AFA) has had an excellent year also,
        sending four different contingents to Washington DC to meet with various law         The International Factoring Association’s
        and policy makers on behalf of the factoring industry. This has resulted in a very   (IFA) goal is to assist the factoring
        positive outcome for all factors. I would like to personally thank the AFA board     community by providing information,
                                                                                             training, purchasing power and a
        and those companies that have contributed to the AFA.                                resource for factors. The IFA provides
        The IFA is continuing to work on behalf of the factoring industry and its            a way for commercial factors to get
                                                                                             together and discuss a variety of issues
        members. Various new items will be implemented in the coming year, including
                                                                                             and concerns about the industry.
        a new website with enhanced social networking features, the release of the           Membership is open to all banks and
        biennial Factoring Survey and the roll out of our certification program. As the      finance companies that perform financing
        world’s preeminent association for the factoring and receivable finance commu-       through the purchase of invoices or other
        nity, we will continue to campaign on behalf of factors.                             types of accounts receivable.

        Finally, I would like to thank you for allowing me to work for an industry that I    The Commercial Factor is published
                                                                                             quarterly by the International Factoring
        respect in a position that I enjoy.
                                                                                             Association. To subscribe, please email
                                                                                             info@factoring.org.

                                                                                             The Commercial Factor magazine invites
                                                                                             the submission of articles and news
                                                                                             of interest to the factoring industry.
                                                                                             For more information on submitting
                                                                                             articles or advertisements, email info@
                                                                                             factoring.org, or call 800-563-1895.

4 The Commercial Factor | SPRING 2011
INDuSTRy NEWS                                  discounting) financing to a drywall
                                               contractor in Georgia. IFG also pro-
Delta Trade Finance Opens New
                                               vided $134,429 of spot factoring (invoice
York Office                                                                                to a range of companies, including the
                                               discounting) financing to a pool products
Delta Trade Finance, the specialist                                                        following:
provider of payables finance programs          manufacturer in California, $108,839 to a
for mid- and large-corporates purchas-         roofing contractor in Colorado and more.       • in Northern California Summit pro-
ing from China, has opened its New York                                                       vided a $1.25 million A/R credit line to
                                               Summit Financial Provides $10
office. This complements its existing                                                         a wine distributor
                                               Million in Working Capital
presence in London and Los Angeles and                                                        • a $650,000 A/R credit line to a pro-
                                               Summit Financial Resources provides
deep regional footprint in China, where its                                                   vider of IT services
                                               working capital solutions to small- and
Chinese subsidiary, Delta (Tianjin) Supply                                                    • a $500,000 A/R line to a manufac-
                                               medium-sized businesses across the
Chain Financial Service Ltd, is one of the                                                    turer of integrated circuits
                                               country and recently provided more than
only foreign-owned finance companies to
have been granted a local factoring license.   $10 million in working capital facilities      • in Southern California Summit pro-

Corcentric Launches Accounts
Payable Website
Corcentric, a leading provider of accounts
payable automation solutions, launched
its newly redesigned website, http://www.
corcentric.com. Corcentric.com aims to
provide online visitors with up-to-the
minute information about accounts pay-
able and financial process automation
technologies, and embodies Corcentric’s
vision and commitment to be the leading
Accounts Payable automation solution
delivered through a cloud/SaaS model.

SunGard’s AvantGarde Receivables
Recognized by Global Finance as
Best in Category
SunGard’s AvantGard has been recog-
nized twice in Global Finance’s “World’s
Best Treasury and Cash Management
Providers 2011” awards. AvantGard
Receivables was recognized in the best
“Accounts Receivable Services” category,
while AvantGard Treasury was commend-
ed in the best “Treasury Workstation
Provider” category. The evaluation is
based on a variety of criteria, including:
profitability, market share and reach,
customer service, competitive pricing,
product innovation and the extent to
which treasury and cash management
providers have successfully differentiated
themselves from their competitors.

INDuSTRy TRANSACTIONS
TAB Bank Provides $5 Million
Facility for MidStates Capital
TAB Bank has provided a $5 million facil-
ity for MidStates Capital, LLC of Brighton,
Michigan. MidStates, through Sterling
Commercial Credit, provides asset based
lending solutions to small and medium
sized businesses by purchasing credit
worthy accounts receivable and provid-
ing asset based lines on credit. Sterling’s
targeted customer base consists of busi-
nesses with total annual revenue under
$5,000,000 and in need of credit facilities
from $20,000 to $2,000,000.

The Interface Financial Group
Announces New Factoring Deals
The Interface Financial Group has pro-
vided $448,899 of spot factoring (invoice



                                                                                           The Commercial Factor | SPRING 2011 5
     news                                         rent president and CEO, will assume the      Hart.
                                                  role of executive chairman. As the new
        vided a $400,000 A/R & Inventory line                                                  Anthony Fortunato, underwriter for Bibby
                                                  executive team at CBC, Marc Adelson
        to a manufacturer of security devices                                                  Financial Services Midwest, will relocate
                                                  and Tananbaum will work together to
                                                                                               from Chicago to Phoenix to support BFS’s
        • a $2 million A/R & Inventory line to    expand CBC’s offerings to create a global
                                                                                               West Coast operations.
        a high tech company that services the     integrated financial products and services
        entertainment industry                    company, focused on middle-market            Kristina Madsen has moved into an
        • in the Midwest Summit provided a        businesses. CBC will offer such companies    underwriting position from an account
        $2 million A/R & Inventory line to a      the ability to secure asset-based financ-    executive role. Madsen is a six-year Bibby
        steel fabricator in St. Paul              ing which they may not be able to obtain     Financial Services employee with an
                                                  through traditional financing sources or     outstanding customer service track record
     Republic Business Credit Closes              commercial banks. Adelson, age 50, brings    and years of managing clients.
     $30 Million Senior Secured                   to CBC more than 30 years of corporate       Stephen Beriau, who joined Bibby
     Financing with Wells Fargo                   finance experience, with an emphasis on      Financial Services in 2006 through BFS’s
     Republic Business Credit announced its       secured lending.                             graduate trainee program, has been
     closing of a $30 million senior secured
                                                                                               promoted to operations manager of its
     facility with Wells Fargo Capital Finance,   Crestmark Hires Efland as VP,
                                                  Business Development                         southern California office. 
     part of Wells Fargo & Company (NYSE:
     WFC). This enables Republic Business         Crestmark has added Amy Efland as Vice
     Credit to provide factoring/financing to     President, Business Development, to the      INTERNATIONAL NEWS
     small business and mid-sized companies       Crestmark team. She reports through the      Factor LOGROS de Ecuador
     in the Gulf South region and across the      Troy, Michigan Midwest region office and     Launches Commercial Paper
     country with the liquidity they need         will be located in Palo Alto, California.    Program
     to capitalize on growth opportunities        Efland will expand Crestmark’s financing     Factor LOGROS de Ecuador S.A. has suc-
     presented by a recovering economy and        capabilities into Northern California and    cessfully launched a commercial paper
     thereby build their businesses.              the Northwest area of the United States.     program for $1´100.000 through the
                                                                                               Ecuadorean Stock Exchange. The program
     PERSONNEL                                    Bibby Financial Services Promotes            started in January 2011 and 67% of the
                                                  3 to California Region                       total program has been successfully placed
     ANNOuNCEMENTS                                Bibby Financial Services is pleased to       to date. The Commercial paper program
     Capital Business Credit Appoints             announce three promotions and staff          is rated AA+ by PCR Rating Company and
     Adelson as President and CEO                 changes in the West Coast. All will report   has an average term of 346 days and an
     Andrew Tananbaum, the company’s cur-         to West Coast Managing Director Nick         average rate of 6.7%. Logros Factoring
                                                                                               Group started operations in Ecuador in
                                                                                               June 2008 and Logros Factoring Colombia
                                                                                               in July 2009.

                                                                                               FRAuD
                                                                                               Former Lobbyist Guilty of Swindling
                                                                                               $1.2 Million
                                                                                               Former New Hampshire lobbyist Joan R.
                                                                                               Laplante has been convicted of running
                                                                                               a Ponzi scheme that led to 15 swindled
                                                                                               lenders who lost about $1.2 million; she
                                                                                               was convicted on a single count of mail
                                                                                               fraud. The jury found that Laplante oper-
                                                                                               ated a business, JRL Business Resources,
                                                                                               that used double-digit interest rates to
                                                                                               lure capital that she then paid to other
                                                                                               lenders. Laplante was the director of the
                                                                                               state chapter of the National Federation
                                                                                               of Independent Business, in the early
                                                                                               2000s. Last year, she registered as a lob-
                                                                                               byist representing the soft drink industry
                                                                                               and an out-of-state information services
                                                                                               company. Authorities charged her with
                                                                                               mail fraud as she sent monthly statements
                                                                                               to lenders that created a false impres-
                                                                                               sion of their investment. From 2003,
                                                                                               Laplante borrowed $2.1 million and repaid
                                                                                               $900,000, meaning $1.2 million was lost.
                                                                                               Victims included Laplante’s friends, busi-
                                                                                               nesses and family trusts created by people
                                                                                               she knew. Laplante formerly lived in New
                                                                                               Hampshire and now lives in Berlin. She
                                                                                               is due to return to court for sentencing
                                                                                               on June 1 and faces a maximum prison
                                                                                               sentence of 20 years. •



6 The Commercial Factor | SPRING 2011
       first person



Resiliency, Growth and New
Leadership at Gulf Coast
Business Credit
An Interview with Wade Hladky
PRESIDENT & CEO, GuLF COAST BuSINESS CREDIT

                                            In January, Wade Hladky was promoted to President and
                                            CEO at Gulf Coast Business Credit Division, a division of
                                            Gulf Coast Bank & Trust, headquartered 30 miles outside
                                            of New Orleans. We caught up with Wade and his busy
                                            schedule to ask a few questions about his loyal employees,
                                            what it’s like to survive and adapt to business after
                                            Hurricane Katrina, how the oil spill and current oil prices
                                            are affecting the industry and what trends factors can
                                            expect to see in the future.

Earlier in 2011 GCBC named you            Bank & Trust Company, a New Orleans         as a result you have moved from
its new President and CEO; you            based community bank) has capital and       the downtown location to higher
started with this division as COO         liquidity to employ and is looking for      ground in Covington, has this had
back in 2000, and had also worked         us (GCBC) to play a large part in that.     any impact to GCBC’s clientele?
for many years prior to that at KBK       This means aggressively going after         I wish we could take credit for being
Financial. With all of this experi-       deals that fit within our framework,        smart enough to plan around a disaster
ence behind you, how do you               whether they are individual deals or the    such as Katrina. No one could have
see the future of GCBC? In other          acquisition of portfolios/companies.        forecast something of that magnitude.
words, will you be implementing
                                          We are also taking better advantage         The thing that allowed us to not miss
any significant changes in oper-
                                          of other products offered by the bank       a beat was having a very dedicated
ating or credit philosophy? If not,
                                          in order to complement our existing         staff and second redundant office in
where will you focus your efforts?
                                          A/R products. We have recently closed       Houston as the result of a previous
It is very difficult to try to predict    owner-occupied real estate loans, fleet     acquisition. When the dust settled and
the future, but I feel GCBC is well       financing for trucking clients, inventory   we started to move some staff back to
positioned to take advantage of any       loans and export finance facilities for     the New Orleans metro area, it was
opportunities that come our way,          both new and existing clients. Offering     determined that our clients would be
whether they come in the form of          such products gives us the ability to       better served with us in a hurricane-
organic growth or acquisitions.           close additional factoring facilities       resistant bank facility in Covington
Growth of a profitable, well rounded      we may have otherwise not been able         (about 30 miles north of New Orleans).
and diverse portfolio has always been     to fund and also maintaining existing       While for selfish reasons I would rather
our goal. I do not see any significant    clients that much longer.                   still be in a building in downtown New
changes in that mission. What I do see                                                Orleans steps from the French Quarter
is GCBC taking better advantage of        In 2005 GCBC had to execute                 (much better lunch options), from
the strengths that our bank affiliation   their disaster recovery plan due to         an operations standpoint it did not
has to offer. Our parent (Gulf Coast      both the Katrina & Rita Hurricanes          make much sense. The new location



                                                                                      The Commercial Factor | SPRING 2011 7
     is inland, well above sea level and has     impact to our clients is minimal given      Given that the oil spill in 2010 also
     full generator back-up capabilities in      the technologies of today (VOIP, fax        drastically impacted your particular
     case of a power outage. It is perfect for   servers, email, etc.). Any problems we      region, is GCBC also experiencing
                                                                                             this type of growth?
     our needs as most events will likely        may encounter will likely be local, while
     be a 1-2 day problem. If a much larger      our client footprint is national. We set    The price of oil actually has very little
     event occurs (such as Katrina) we still     up our operations with this in mind.        impact on our portfolio. Given the regu-
     have the option of either Baton Rouge                                                   lations involved and the overall cost
     (another generator-supported banking                                                    of offshore and near shore oil drilling,
                                                 Many oil and gas centric Factors
                                                                                             there are not many of what I would
     facility and operations office of our       and Asset Based Lenders are
                                                                                             consider small businesses involved
     transportation division) or Houston.        experiencing portfolio growth due           in the E&P side of the oil business.
     Regardless of where we operate, the         to the current barrel price of oil.         Our clients tend to be in the ongoing
                                                                                             maintenance / service sector of the
                                                                                             industry. This end of the oil business
                                                                                             has been pretty steady. Now natural gas
                                                                                             is a different story. We have seen signifi-
                                                                                             cant growth in all the natural gas Shale
                                                                                             areas of Texas, Louisiana, Arkansas and
                                                                                             Pennsylvania due to new development
                                                                                             of these regions that came with techno-
                                                                                             logical advancements. When the price
                                                                                             of natural gas finally rebounds I would
                                                                                             look for this trend to only continue to
                                                                                             increase.

                                                                                             It’s been a year since the Gulf
                                                                                             oil spill. Do you see any changes
                                                                                             relevant to your marketplace due
                                                                                             to the damages in the Gulf caused
                                                                                             by the Deepwater Horizon spill?
                                                                                             I don’t think there were really any
                                                                                             market-based changes due to the BP
                                                                                             spill. The spill had an impact on some
                                                                                             of our service sector clients (commer-
                                                                                             cial diving, offshore catering, etc.) and
                                                                                             also on some of our seafood clients. It
                                                                                             remains to be seen how long this impact
                                                                                             will last, but the new drilling morato-
                                                                                             riums will likely extend that period for
                                                                                             the first group and make their recovery
                                                                                             that much more difficult. In terms of
                                                                                             our portfolio, the influx of money and
                                                                                             work caused by the cleanup efforts on
                                                                                             the coast led to some significant new
                                                                                             volume over the last 12 months.

                                                                                             GCBC has been fortunate to add
                                                                                             industry experts to their staff over
                                                                                             the past many years, and it also
                                                                                             seems that GCBC has been busy
                                                                                             adding BDO’s in several markets. Is
                                                                                             this hiring trend going to continue?
                                                                                             I am very fortunate to have a very expe-
                                                                                             rienced team in place. Chuck McDowell
                                                                                             and I first met in the early 90’s when we
                                                                                             both worked for the same bank in Baton
                                                                                             Rouge. It was not until the early 2000’s
                                                                                             that we hooked up at an IFA event and
                                                                                             connected the dots. He was at that time
                                                                                             running Seven Oaks Capital in Baton
                                                                                             Rouge. We eventually convinced him to
                                                                                             join GCBC and start up a transportation


8 The Commercial Factor | SPRING 2011
specialized division. Over the last
year his role was expanded to include
operational responsibilities for all of
our offices and he has done a great job
with this expanded role. On the Sales
side, we are extremely fortunate to have
Meg Roberson now leading our team of
BDO’s as National Sales Manager. Meg
has been with Gulf Coast since 2006,
heading up our Texas and Louisiana
sales efforts. Prior to Gulf Coast, Meg
held similar positions with both an
independent finance company as well
as a national bank.
We have some aggressive growth goals
for 2011 and beyond. We closed over 100
transactions in 2010 which was a record
for us. In order to meet expectation, we
will likely have to do more this year. We
have added several new BDO’s in the
past year and Meg has done a fantastic
job getting them up to speed. We will
likely add several additional BDO’s
this year if we find candidates that fit
our criteria and serve markets that we
would like to penetrate.

What are your thoughts and
predictions about the industry
and the future? What are the most
relevant issues for factors?
I think the trend for the near term will
be further consolidation. There is too
much liquidity still on the sidelines for
that not to occur. As other asset classes
continue to be out of favor (real estate
for example) more money will find its
way into our marketplace. For most
large investors, the quickest and easiest
way to employ money will be through
strategic acquisitions. Not many have
the patience or the investment time-
frame to start something from scratch
and grow internally.
Relevant issues remain the same:
• Ever changing regulatory and legal
environment. We spend a considerable
amount of money on legal bills just to
keep up with changes.
• Managing debtor risk. While the worst
has probably passed, the wave of above
average debtor bankruptcies is likely
not over.
• Fraud – keeping up with ever more
complex schemes and technologies.

Wade can be reached at wadehladky@
gulfbank.com or 985-249-7200.
Special thank you to Darla Auchinachie
for her contribution to the questions and
topics covered in this interview •



                                            The Commercial Factor | SPRING 2011 9
     Increasing Liquidity in the
     Automotive Supply Chain
     The automotive market is heading toward a growth spurt, giving factors enormous
     opportunity to help fuel the growth of this country’s single largest manufacturing
     employer. By LEIGh LONES


                                         The automotive market is heading toward a growth spurt, giving factors enormous
                                         opportunity to help fuel the growth of this country’s single largest manufacturing
                                         employer.
                                         Pent up demand, consumer confidence and a shift towards fuel-efficient vehicles will
                                         spearhead this automotive Renaissance. Industry analyst Lindsay Chappell predicts,
                                         “The U.S. market is now fully capable of selling 15 million or more new autos a year.
                                         A year or two at 10 million sales suggests there are millions more of unrealized sales
                                         out there just waiting to happen.”
                                         This behemoth of an industry has come a long way in a short time. The Recession
                                         caused it to come to a screeching halt in 2008 and 2009. But now, Toyota,
                                         Volkswagen, Kia and Audi are all opening plants, or expanding existing plants, in
                                         the Southeastern U.S. along with several new plants in California. The Big Three
                                         American auto makers -- General Motors, Ford and Chrysler -- are also all showing
                                         signs of a promising turnaround:
                                                • GM reported after tax profits of $4.7 billion in 2010, making it its best year
                                                since 2004;
                                                • Ford surpassed GM, with after tax net profit of $6.56 billion,
                                                • And, Chrysler, the smallest of the Big Three, announced that even though it
                                                saw a net loss in 2010, it expects to see net profits of $200-500 million in 2011.




10 The Commercial Factor | SPRING 2011
They all are betting that consumers will    results. They have lobbied to get access      Generally, Tier One suppliers provide
trade in a sizeable portion of the 250      to the low-interest government loan           full design, assembly and engineering
million cars on the road today for more     offered to automakers. But even after         support. They sell finished components,
fuel efficient, technologically savvy       they were able to influence Congress to       such as transmissions, seats and instru-
models.                                     redraft the U.S. Department of Energy’s       ment panels, directly to car companies,
All of these indicators show this is a      Advanced Technology Vehicles                  known in the industry as Original
promising market for factoring, but not     Manufacturing Loan Program to                 Equipment Manufacturers (OEMs).
one without risk issues. It’s important     include suppliers, their ability to get the   Tier one is comprised mostly of large
that we as financers support this           loans remains tentative at best. Even         companies such as Delphi or Johnson
industry that is vital to the health of     one of the industry’s largest suppliers,      Controls.
our economy. Here’s how the factoring       BorgWarner, was eventually denied a           Tier Two companies mostly sell
industry can effectively capitalize on      loan.                                         products to Tier One. An example of
this trend:                                                                               a typical Tier Two company would be
                                                                                          one that supplies component parts,
Help suppliers meet demand                    WITH GOVERNMENT LOANS                       such as transmission gears, electronics,
With growth on the horizon, the                                                           speedometers and seat covers, to the
suppliers to the automotive industry          DIFFICuLT TO COME By,                       Tier One suppliers.
are ramping up production to keep             FACTORING IS AN IDEAL                       Tier Three suppliers generally provide
up with the demand for new products                                                       smaller components and some tooling
and the increased interest in current         CASH FLOW SOLuTION                          and dies to Tier Two companies. In
models. According to Autotrends.org,                                                      practice, they sell to both Tier One and
the industry has begun to recover the         FOR THE AuTOMOTIVE
                                                                                          Tier Two.
hundreds of thousands of jobs lost over       SuPPLIER MARkET.
the past five years. The automotive                                                       “We consider all three tiers factorable,”
industry now directly employs over                                                        says Robert Meyers, VP of Sales at
685k Americans – and is hiring again.       According to Marcus Ferrari, National         Bibby Financial Service. “Tier Two is
It generates an additional 3 million        Sales Director of Bibby Financial             usually the most factorable tier with the
jobs through the suppliers that support     Services, “Currently, traditional bank        lowest risk issues due to their size and
them.                                       lending is generally not available to         position in the supply chain. Tier Three
                                            automotive companies in the middle            companies are factorable, but will have
Although suppliers are expected to                                                        risk issues that need to be mitigated.
benefit from this resurgence, they’re       market so they must rely on asset based
now experiencing the growing pains          financing for working capital. But, as        “We find that Tier Three companies
that come from a spike in demand            clients are pushing ABL lenders to            typically will have the slowest paying
without increased liquidity. According      generate more availability, ABL lenders       customers because they sell to the
to the Automotive Supplier Barometer        are reaching out to factors that have         second tier, which is waiting for cash
of the Original Equipment Suppliers         international capabilities and purchase       from the first tier,” said Meyers.
Association (OESA), an increasing           order finance companies to fill in the
                                                                                          Tier Three companies that do tooling
number of suppliers are seeing              cash flow gaps.” 
                                                                                          create special concerns for factors,
increased operational costs across the      Bibby Financial Services had the              according to Meyers. Tooling is usually
board: Production labor premiums,           opportunity to help an automotive             billed in progress payments and it
material cost premiums, set-up and          manufacturing client that was forced          may take twelve months or longer to
change over costs, expedited freight,       into bankruptcy. Its sales fell due to        complete.
and inventory carrying costs. More than     the poor economic conditions in early
90% of suppliers say their predominate                                                    “There is always a chance the OEMs
                                            2009; they were in the unfortunate
concern is an increase in material costs.                                                 may change their product or not pay
                                            position of having Chrysler as their
It has already forced some companies                                                      until it’s complete which creates
                                            main customer at that time. Their bank
into bankruptcy.                                                                          liquidity problems for suppliers and
                                            called up their note on an otherwise
                                                                                          risk issues for factors,” he warns.
                                            performing loan before Chrysler
Step in while banks remain                  declared bankruptcy, forcing the client
reluctant lenders                                                                         Pursue credit insurance;
                                            into bankruptcy themselves. Bibby
                                            Financial Services received the client
                                                                                          beware contra accounts
With the cost of materials on the rise,
supplier pain is exacerbated by the         through DIP funding.                          Even with the Recession in the rear
difficulty maintaining and obtaining                                                      view mirror, pursuing credit insur-
bank loans. According to Automotive         understand industry tiers                     ance is a great way to mitigate risk in
News industry analyst James B. Treece,      It’s important to understand the auto-        this sector and it is becoming easier to
despite parts suppliers’ healthy stock      motive supply chain when entering this        obtain again.
prices, banks are holding back from         market. There are three tiers of auto-         “Many Factors use credit insurance,”
supporting this important sector. This      motive manufacturing companies that           according to Scott Ettien, Senior Vice
could be due to the losses banks took       will fuel this rebirth of the American        President of Trade Credit and Political
from this sector during the Recession.      auto industry. Each is defined by the         Risks at Willis Financial Solutions. “It
Suppliers are fighting back with mixed      end user of that company’s product.           becomes a nice form of opening new



                                                                                          The Commercial Factor | SPRING 2011 11
     credits and expanding existing lines,      third party expert opinion to bolster      according to Meyers, “but we tend
     however, the availability of credit        a factor’s own credit decisions which      to see it occur mostly in the top tiers
     insurance will ebb and flow with the       instills further disciplines during        where larger companies are involved.”
     market sector and economic condi-          difficult times.”
     tions. During the Recession, most credit   Every tier may or may not also have
                                                                                           Review vendor agreements
     insurers pulled away from automotive       contra accounts. For example, a Tier       and purchase orders
     manufacturing companies but that           One company might supply materials         With any tier of the automotive manu-
     is fading as individual financials and     to a Tier Two, which will then manufac-    facturing industry, pay special attention
     economic conditions improve. Because       ture the product and sell it back to the   to the vendor agreements and purchase
     credit insurers monitor the market so      same Tier One company.                     orders. Some may have liquidated
     carefully, they can supply an important    “This can happen in any of the tiers,”     damages. The company may also have
                                                                                           a performance guarantee that states
                                                                                           if it doesn’t fulfill an entire order and
                                                                                           the customer has to find an alternative
                                                                                           supplier, they can charge the client for
                                                                                           production costs as well as the costs
                                                                                           associated with finding that additional
                                                                                           supplier.
                                                         services LLc
       A Leading Choice for Purchase Order Finance                                         Facilitate flexible solutions
                                                                                           Finally, an important way to help
                                    Through                                                companies in this sector is to bring
                                                                                           together multiple lenders such as
                                Hartsko purchase
                                                                                           equipment, inventory and real estate
                         order financing, well-managed                                     financiers. You can then provide the
                      companies can grow sales and take                                    maximum cash flow possible so these
                 advantage of profitable growth opportunities                              suppliers in every tier can help the US
                that are larger than they can support internally.                          take its leadership position in the global
                                                                                           automotive industry again. •

      What Hartsko
                 Does For You...
                             •	 evaluates transactions and looks beyond                                            Leigh Lones
                                our client’s balance sheet.                                                        is CEO
                             •	 Grants you access to working capital                                               Americas,
                                without having to sacrifice equity.                                                Bibby
                                                                                                                   Financial
                             •	 Provides approval in days, not weeks, or longer.
                                                                                                                   Services,
                             •	 Works across many industries, company types                 North America. Leigh oversees
                                and purchase order sizes.                                   eight offices that specialize in
                             •	 supports both domestic and international                    creating cash flow for small
                                transactions.                                               and medium-sized businesses in
                                                                                            industries ranging from apparel to
                                                                                            manufacturing to transportation.
                Hartsko is a privately funded, closely held entity
                                                                                            Leigh has played a significant role in
                with a strong financial foundation and is able to                           positioning the company for future
                   react quickly to unique financing requests                               growth in the marketplace. Since
                      in trade. We are not a bank! We offer                                 joining BFS in 2006, she has refined
                          the speed and flexibility to get                                  its branding, helped launch the
                                 deals done fast!                                           company’s export finance division,
                                                                                            and managed the acquisition of
                                                                                            Freight Check, a subsidiary that
                                                                                            serves the owner-operator trucking
    Hartsko Financial Services, LLC             Richard Eitelberg, CPA                      industry. She has a business degree
    214-18 41st Avenue                          President                                   from the University of Tennessee
    suite 301                                   Tel: 718-229-0440                           and lives in Atlanta with her
                                                                                            husband and two children. Leigh
    Bayside, NY 11361                           Fax: 718-229-5428
                                                                                            can be reached at 678-385-9660 or
    cell: 516-906-6682                          e-mail: reitelberg@hartsko.com              llones@bibbyusa.com


12 The Commercial Factor | SPRING 2011
                                                         Zaytinya, 701 9th Street NW in the Pepco Building (Ten Quarter)




D.C. Dining: Something for
Everyone in Our Nation’s Capital
By ALLEN E. fREDERIc, JR.




                        Washington D.C. is one of my favorite cities. It is easy to get around and there are cabs
                        everywhere, it has a great metro, it’s bustling and has lots of activity. With the Embassy
                        crowd from all over the world there is tremendous ethnicity both among the people and
                        the food. Washington is a great restaurant town and people love to go out to eat. What I
                        love is the variety of ethnic food. You can go to Nam-Viet, 3419 Connecticut Avenue in
                        Cleveland Park, and get great Vietnamese food for under $20 on a menu with a hundred
                        choices. Stop by Ben’s Chili Bowl, 1213 U Street, for a smoky chili dog at any hour of the
                        night. Remember this is one of Barak Obama’s favorite places and if it’s good enough
                        for the President it’s good enough for me. Craving a greasy cheeseburger at midnight,
                        try Five Guys, 13 35 Wisconsin Ave, which east coast regulars swear is far superior to
                        the west coast In & Out burger chain. Or try Thai Square for Thai food, Sushi Taro for
                        Japanese, Rasika for Indian and La Chaumiere for French, the variety here and the ethnic
                        mix are terrific. Also you will find great restaurants in the neighborhoods. For example,
                        right outside the hotel and all along Woodley Park up to Cleveland Park, one metro stop
                        up on Connecticut, there are great places, many with European sidewalk eating.




                                                                          The Commercial Factor | SPRING 2011 13
                                                         The following are 11 of my favorites:
                                                         PRIME RIB, 2020 K Street NW, 202-466-
                                                         8811 – The best steak in D.C. in my
                                                         opinion, on old time Washington
                                                         favorite. This is like a supper club of the
                                                         50’s and 60’s, very plush interior, small
                                                         jazz combo, coat and tie. On my last
                                                         visit they had fresh Dover sole flown in
                                                         from England along with fresh lobster.
                                                         CENTRAL MICHEL RICHARD, 1001
                                                         Pennsylvania Ave at 10th, 202-626-
                                                         0015 – Richard is one of the all-star
     La Chaumiere, 2813 M Street at 28th in Georgetown   chefs and the founder of the Citronelle.
                                                         The food is French with an American
                                                         flair. The chef is very creative, mixing
                                                         ingredients you wouldn’t normally
                                                         consider with great results. It offers lots
                                                         of small plates, a fun atmosphere and a
                                                         great bar. Fun place!
                                                         CASHION’S EAT PLACE, 1819 Columbia
                                                         Road NW (between Biltmore and
                                                         Mintwood in Adams Morgan), 202-797-
                                                         1819 – This is a perfect example of an
                                                         upscale neighborhood restaurant with
                                                         a menu always filled with fresh seasonal
                                                         ingredients, simple but outstanding.
                                                         The menu might be game in the fall, a
                                                         lighter fare in the spring and summer.
                                                         FILOMENA RESTORANTE, 1063
                                                         Wisconsin Avenue (at M Street in
                                                         Georgetown), 202-338-8800 – One of
                                                         my favorite in D.C. It’s a downhome
                                                         Italian place that has been featured on
                                                         the Food Network. Filomena is famous
                                                         for their homemade pasta and lots of it.
                                                         Over 20 types of pasta are listed, with
                                                         every sauce imaginable although it has
                                                         both Roman and Neapolitan influence.
                                                         Portions are huge with a great Italian
                                                         wine selection and fabulous Italian
                                                         desserts. It is moderately priced and
                                                         lots of fun, it is always packed.
                                                         CITRONELLE, Michel Richard’s
                                                         masterpiece in the Latham Hotel in
                                                         Georgetown, 3000 M Street at 30th,
                                                         202-625-2150 – My vote for the best in




                                                         Ceviche from Cashion’s Eat Place, 1819
                                                         Columbia Road NW



14 The Commercial Factor | SPRING 2011
D.C. Very new French with plates like
a work of art. Watching the chefs in
the glassed in kitchen makes you feel
like you are watching the Iron Chef on
television. The food here is not simple
and not cheap but really an experience
in taste.
CITyZEN, 1530 Maryland Avenue
SW at 12th in the Mandarin Oriental
Hotel, 202-787-6006 – Typical of
the Mandarin Oriental, first class in
every respect, one of the most posh
restaurants in D.C. with one of the
                                               CityZen, 1530 Maryland Avenue SW at 12th in the Mandarin Oriental Hotel
poshest prices. It’s not just a meal it is
an experience. This place is elegant in
every respect.
                                               young crowd, and a fun place to be.              ZAyTINyA, 701 9th Street NW in
INDIquE, 3512 Connecticut Avenue                                                                the Pepco Building (Ten Quarter),
                                               POLENTA, 3529 Connecticut Avenue
in Cleveland Park, 202-244-6600                                                                 202-638-0800 – It is a combination of
                                               NW in Cleveland Park, 202-537-9250 –
– Another one of my D.C. favorites.                                                             Mediterranean, Middle Eastern, Greek
                                               Another one of my favorites. Polenta is
Upscale gourmet Indian with great                                                               and Turkish with lots of different tastes.
                                               located right on Connecticut at the end
Nan freshly baked, fabulous curries and                                                         The time I was there I had lamb shank
                                               of a small neighborhood strip shop-
tandoori, very moderately priced, white                                                         that had been roasted for 12 hours with
                                               ping center. This is one of the best kept
tablecloth service, quiet and intimate                                                          all sorts of Middle Eastern spices that
                                               secrets in D.C. with a tremendously
restaurant. This is one metro stop up                                                           were to die for. Lots of small plates,
                                               creative chef. With everything fresh
from the Omni in the Cleveland Park
                                               and made in house, the menu changes              this is a noisy bustling place with lots of
neighborhood.
                                               seasonally. It has very friendly service         activity but great food. A fun experience
LA CHAuMIERE, 2813 M Street at 28th            and a friendly intimate atmosphere.              with a huge lively bar packed 4 people
in Georgetown, 202-338-1784 – A                This place has fabulous food and is              deep. A fun place if you are an adven-
traditional French restaurant which            reasonably priced.                               turous eater. •
has been around a long time. This old
world, old school restaurant has the
same menu they have had for years but
what they do they do very well.
DC COAST, 1401 K Street at 14th
downtown in the Tower Building,
202-216-5988 - This restaurant special-
izes in seafood with a very modern sleek
interior, lots of activity, great bar scene,




                       Allen E.
                       Frederic,
                       Jr. is CEO,
                       Managing
                       Member and
                       co-founder
of Republic Business Credit LLC, a
commercial finance and factoring
operation headquartered in New
Orleans, Louisiana with offices in
Houston and Chicago. Previously,
Frederic was CEO and founder of
Gulf Coast Business Credit, the
factoring division of New Orleans
based Gulf Coast Bank & Trust
Company where he served as CEO
for 11 years. He can be reached at
afrederic@republicbc.com.



                                                                                               The Commercial Factor | SPRING 2011 15
  VISIT
        u
  BOOT S AT
 AT T H 7
CONF HE IFA
     EREN
          CE
New Century Financial
vs. Olympic Credit Fund
On June 30, 2009, a lawsuit was filed in the Southern District of Texas, Houston
Division of the US District Court by and between two long standing IFA members.
This article summarizes all of the public data available to present a
readable review. By DARLA AuchINAchIE

On June 30, 2009, a lawsuit was filed in the Southern District   article summarizes all of the public data available to present a
of Texas, Houston Division of the US District Court by and       readable review.
between two long standing IFA members. On March 11, 2011
                                                                 Let’s start with a review of the original complaint. The
The Honorable US District Judge Melinda Harman concluded
the civil action by awarding Final Summary Judgment to the       pleading lists specific details to support NCF’s plea to the
Defendant: Olympic Credit Fund (“OCF” or “Olympic”). OCF         Courts for relief. The basics are that OCF factored a client by
was also awarded costs. The Court ordered that the Plaintiff’s   the name of Education Advance (“EA”) from 11/29/06 until
claims be dismissed as a matter of law, and New Century          EA entered into a factoring agreement with NCF sometime
Financial (“NCF”) was ordered to take nothing. It is not clear   in April or May of 2009. At the time NCF acquired the EA
as of this writing whether or not NCF will appeal the Judge’s    account, NCF paid OCF $955,105.04 which was the amount
final order.                                                     required by OCF to release its ownership and security interest
                                                                 rights in the outstanding accounts.
There are literally thousands of pages of allegations, facts,
witness and expert witness reports and depositions, exhibits,    Among other things, NCF alleged that OCF had knowledge
records, motions, and opinions that exist in this case. This     of and failed to disclose to NCF a “recent conversion of OCF




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                                   Tel: (212) 581.0500 Ext: 5254 Fax: (212) 581.0002
                                                 Email: info@centurionllc.com



                                                                                       The Commercial Factor | SPRING 2011 17
     funds by EA”. Further, this conversion     agreement was entered into by mistake.   Next, NCF cited Fraud by
     issue was of “magnitude so funda-                                                   Non-Disclosure by alleging that
                                                NCF also alleged Negligent
     mental” that a reasonable factor issuing                                            OCF knew or should have known the
                                                Misrepresentation of a Claim by among
     a payoff under the circumstances of the                                             invoices were fraudulent. NCF believed
                                                other things their belief that OCF did   that OCF had a duty to disclose these
     case would deem it material.
                                                not inform NCF of the “prior conver-     facts and that by failing to disclose, OCF
     NCF requested that the Court consider      sion” and that OCF made material         intended to induce NCF to enter into
     Action for Mutual Mistake. Simply          representations in a transaction in      the payoff agreement, and as a result,
     put, the Payoff agreement should           which they had a pecuniary interest.     NCF relied on this non-disclosure and
     be void and therefore unwound. In          NCF presented that OCF supplied false    suffered pecuniary loss.
     other words, OCF should refund NCF         information to NCF about the relation-   Finally, NCF alleged Fraud due to false
     the $955,105.04 because the payoff         ship and history with EA.                material representations made by OCF
                                                                                         to NCF and NCF’s reliance upon these
                                                                                         representations.
                                                                                         In its conclusion, the original complaint
                                                                                         sought 1) Rescission and Restitution; 2)
                                                                                         Other relief in law and equity; 3) Actual
                                                                                         damages in the amount of $955,105.04;
                                                                                         4) Attorney’s Fees; 5) Exemplary
                                                                                         damages of at least three times the
                                                                                         actual damages; 6) Court Costs; etc.
                                                                                         Going back and to summarize the case:
                                                                                         OCF had a factoring relationship with
                                                                                         EA; the account was starting to build
                                                                                         in volume purportedly due to funding
                                                                                         from the “No Child Left Behind Act”.
                                                                                         Based on the evidence presented in this
                                                                                         case, the account did turn on a monthly
                                                                                         basis and had for some time. OCF
                                                                                         eventually determined that the account
                                                                                         was growing beyond their desirable
                                                                                         limits and asked EA to find another
                                                                                         factoring company who could support
                                                                                         their growth.
                                                                                         EA did in fact find another factoring
                                                                                         company who wanted to acquire
                                                                                         them as a client. As a result, OCF and
                                                                                         NCF entered into a tri-party Payoff
                                                                                         Agreement (the “Payoff Agreement”)
                                                                                         outlining the terms and conditions of
                                                                                         the transaction wherein OCF would
                                                                                         release their security interest in EA
                                                                                         upon receipt of funds from NCF. This
                                                                                         Payoff Agreement is central to the
                                                                                         rulings in this case.
                                                                                         As you will learn, there was not suffi-
                                                                                         cient proof provided to the courts that
                                                                                         OCF knew or should have known that
                                                                                         the EA account was in fact a fraud. It
                                                                                         was, by the way, a fairly sophisticated
                                                                                         fraud that will go into the education
                                                                                         books for sure. The particulars of the
                                                                                         fraud are now apparent, but then again,
                                                                                         we have the benefit of hindsight.
                                                                                         As you continue to read, you may ask
                                                                                         yourself, “Did OCF know this was a
                                                                                         fraud? Should NCF place reliance upon
                                                                                         OCF’s statements? Or, should NCF
                                                                                         rely only upon their independent due
                                                                                         diligence?” The Court found that the
                                                                                         former is not relevant technically in


18 The Commercial Factor | SPRING 2011
this case due to the clauses embedded        Payoff Agreement for mutual mistake by       executing the agreement, NCF agreed
in the written payoff or takeout agree-      also suing OCF for fraud and negligent       to a waiver of reliance of which OCF
ment executed by all three parties to this   misrepresentations because [allegedly]       claimed the language in the Payoff
transaction, more on this to come. As to     OCF knowingly misrepresented the             Agreement clearly articulated. That
the questions of reliance and indepen-       validity of the accounts.                    is, the parties agreed in the Payoff
dent due diligence, this is something                                                     Agreement that such agreement
                                             OCF further asserted that the NCF
every factor should discuss to determine                                                  was made without representations
                                             allegations failed because:
what is acceptable within their business.                                                 or warranties and that NCF was not
                                                •NCF could not meet its burden to         entitled to hold OCF liable for money it
                                                establish that it suffered an injury      may be unable to collect through EA’s
  AFTER THE ORIGINAL                            distinct, separate and independent        accounts receivable.
                                                from the economic losses recover-
  COMPLAINT WAS SERVED,                         able under the Payoff Agreement.          As to the issue of conversion whereby
                                                                                          the Plaintiff claimed was “of such a high
  A MyRIAD OF MOTIONS,                          Thus, negligent misrepresentation
                                                                                          magnitude”, OCF claimed that there was
                                                claims are barred by the economic
  ORDERS AND THE LIkE                                                                     no evidence that a factored check was
                                                loss rule; and
  WERE FILED IN THE DOCkET                                                                converted by EA or that EA was placed in
                                                •NCF’s tort claims failed because         default by OCF. Furthermore, there was
  OF THIS CASE. A JuRy TRIAL                    NCF’s Payoff Agreement provided           no evidence that OCF knew the invoices
  WAS EVEN ORDERED FOR                          that NCF was without recourse             included in the payoff were fraudulent.
                                                against OCF if it were unable to
  SEPTEMBER 2010. BOTH                                                                    Despite the allegation that OCF was
                                                collect…; and
  THE DEFENDANT AND THE                                                                   negligent by misrepresentation, OCF
                                                •there was uncontroverted evidence        pled that there was uncontroverted
  PLAINTIFF EVENTuALLy                          that NCF contractually waived             evidence establishing that OCF did not
  FILED CROSS MOTIONS FOR                       justifiable reliance on pre-contrac-      knowingly or recklessly make a mate-
                                                tual representations in the Payoff        rial false statement or fail to disclose a
  SuMMARy JuDGMENT.
                                                Agreement it drafted; and                 material fact.
                                                •OCF did not make material                The motion for Summary Judgment
Entry 45 in the docket is the Defendant’s
                                                misstatements or knowingly fail to        included other items in the rebuttal
motion for summary judgment setting
                                                disclose material information to          and concluded with the argument that
the basis for their request condensed
                                                NCF; and                                  NCF agreed to purchase the accounts
below from the original 26 pages.
                                                •the terms of the Payoff Agreement        with the knowledge that OCF made
In mid-May 2009, NCF, OCF and EA                                                          no representations with respect to the
                                                made clear that OCF made no repre-
entered into the Payoff Agreement                                                         Payoff Agreement and that NCF also
                                                sentations regarding the validity of
through which OCF’s factoring accounts                                                    specifically agreed that it was making the
                                                the accounts and that NCS bore the
with EA were in effect purchased or                                                       Payoff Agreement “without recourse to”
                                                risk of any loss.
“paid off” by NCF. The Payoff Agreement                                                   OCF. Thusly, the unambiguous terms of
which was drafted by NCF and which           To support #4 and #5 directly above,         the Payoff Agreement made clear that
NCF uses as its form contained a release     OCF detailed the one and only conver-        there was no mutual mistake regarding
and indemnity clause and a merger            sation related to EA between an OCF          the accounts, that NCF assumed the
clause stating:                              account executive (“A/E”) and a NCF          risk of any mistake, and as such, was not
                                             employee, which was recorded on May          entitled to rescission of the contract.
Release and Indemnity. Except as
                                             19, 2009 and lasted four minutes. The
expressly provided in this Agreement                                                      After 22 months since that initial
                                             OCF A/E was not asked to describe the
this termination and release is made,                                                     recorded conversation, on March
                                             overall factoring relationship with EA, or
delivered and accepted without repre-                                                     11, 2011, the Court found that the
                                             to describe the history of the account, or
sentation or warrant, oral or written,                                                    Defendant’s motion for summary
                                             if there had been any problems with the
express or implied, and is without                                                        judgment was granted. Included in the
                                             account, or even if there had ever been
recourse to Factor [Olympic]                                                              opinion and order penned by the Court:
                                             any conversions of checks, defaults, or
                                                                                          both parties (OCF and NCF) are in
 Entire Agreement. This Payoff               other events. According to depositions,      the business of factoring and both are
Agreement constitutes the entire             the OCF A/E made statements such as,         members of the IFA. On or about April
agreement between the parties hereto         “It was ‘good’ that NCF was picking up       8, 2009, EA contacted NCF to discuss
concerning the subject matter hereof         additional business,” the [client contact    the prospect of a factoring relationship
and may not be altered or amended            person] “had been good to work with,”        and from then until May 19, 2009, NCF
except by written agreement signed by        and that OCF “...could no longer accom-      conducted due diligence regarding
the [OCF] and NCF. All other prior and       modate certain of the account’s credit       the potential transaction. Before NCF
contemporaneous agreements, arrange-         requests”.                                   could become the new factor, OCF had
ments, and understandings between the                                                     to release its ownership and security
                                             In reference to #2 above, OCF
parties hereto as to the subject matter                                                   interest in the accounts.
                                             contended that the Payoff Agreement
hereof are rescinded.
                                             clearly stated that NCF was receiving        NCF alleged that EA converted a check
OCF moved for summary judgment               value for the termination and release        rightfully belonging to OCF under the
because, among other things, NCF was         of the accounts and paid a sum for           factoring agreement in the amount of
inconsistent in their plea to rescind the    such consideration. Moreover, that by        $254,430. NCF stated that the OCF A/E
                                                                                          failed to mention the conversion issue
     and argued that such conversion issue       issues, ultimately stating that NCF          or did anything that NCF might have
     impliedly warranted that the accounts       did not allege an injury distinct from       placed reliance on.
     were valid, owing and due. NCF claimed      that it suffered under the Payoff            The Court opined that to consider
     that on June 15, 2009 after executing the   Agreement and that NCF sought the            whether the parties waived reliance by
     Payoff Agreement, EA converted funds        same measure of damages that it paid         the terms of the contract the following
     in the amount if $866.8K and that this      to OCF to assume the EA account              must be evaluated: 1) the terms of the
     conversion was allegedly identical to       under the Payoff Agreement. Moreover,        contract were negotiated, rather than
     the conversion OCF had not disclosed        NCF failed to show an independent            boilerplate; 2) the complaining party
     to NCF. NCF also discovered that the        injury sufficient to support its claim for   was represented by counsel; 3) the
                                                 negligent misrepresentation. Simply          parties dealt with each other in an arm’s
     account debtor was in fact a fraudulent
                                                 put, NCF agreed to indemnify OCF             length transaction; 4) the parties were
     entity.
                                                 of loss, yet tried to ignore the terms       knowledgeable in business matters; and
     The opinion further explained the           of the Payoff Agreement. Insufficient        5) the release language was clear.
     standards by which it ruled on the          evidence existed showing that OCF said
                                                                                              Since OCF and NCF are competitors
                                                                                              in the factoring business, negotiated
                                                                                              at arm’s length and appear equally
                                                                                              sophisticated in their business dealings,
                                                                                              combined with the fact that the Payoff
                                                                                              Agreement was the Plaintiff’s form,
                                                                                              the terms and conditions of the Payoff
                                                                                              Agreement should stand. More to the
                                                                                              point, NCF admitted that through the
                                                                                              Payoff Agreement, it purchased only the
                                                                                              “factoring relationship that had existed
                                                                                              between OCF and its long-standing
                                                                                              factored client EA.” When the debts
                                                                                              NCF was owed turned out to be uncol-
                                                                                              lectable, NCF filed suit against OCF
                                                                                              seeking rescission and damages in tort
                                                                                              equal to its costs under the contract.
                                                                                              Pursuant to the Payoff Agreement,
                                                                                              however, NCF explicitly disclaimed its
                                                                                              right to justifiably rely on any state-
                                                                                              ment, characterization or omission not
                                                                                              contained within the contract.
                                                                                              As you can imagine, this case has caused
                                                                                              quite a stir. The biggest concern has
                                                                                                                    Continued on page 33




                                                                                                                     Darla
                                                                                                                     Auchinachie
                                                                                                                     has been an
                                                                                                                     asset to the
                                                                                                                     factoring
                                                                                                                     community
                                                                                               for nearly twenty years. Using her
                                                                                               experience in a variety of roles
                                                                                               including “C-level” executive
                                                                                               she has assisted many companies
                                                                                               achieve their goals. As a top-rated
                                                                                               speaker and co-instructor for the
                                                                                               IFA she educates on all aspects of
                                                                                               the business of factoring. Darla
                                                                                               believes in a business philosophy
                                                                                               that promotes “best practices”
                                                                                               and supports the IFA as a Subject
                                                                                               Matter Expert. Darla has earned a
                                                                                               solid reputation among factoring
                                                                                               companies as an invaluable
                                                                                               consultant and can be reached at
                                                                                               auchinachie@charter.net



20 The Commercial Factor | SPRING 2011
       an inside look                                            whAt fActOR cLIENtS hAvE tO SAy




                                 q&A with Sherm Robinson
                                 Owner of Lehi Roller Mills
                                                                          IFA: How did the factor assist you?
                                                                          Robinson: We have a fairly simple business of turning hand-
                                                                          picked wheat into flour and gourmet baking mixes. We have
                                                                          solid customers who have been with us for years. Many times
                                                                          our customers come to us with big orders and in the past, it
                                                                          was tough to come up with the cash to purchase the wheat to
                                                                          fulfill those orders. With TAB, we not only get liquidity from
                                                                          our receivables, they are able to accommodate advances on
                                                                          many of these large orders. That equals additional business
                                                                          that goes right to our bottom line. We would not be able to do
                                                                          that without TAB.
                                                                          IFA: Has the relationship been a good one?
                                                                          Robinson: TAB’s people talk to us on a daily basis. Anytime
                                                                          I want to talk with my account manager, she is available. It
                                                                          is as if when I call, it is a priority for her to get back to me.
     IFA: Why did you choose factoring versus other types of              So day to day, it is seamless and we don’t encounter any
     financing?                                                           problems. TAB is way ahead of us on systems and we use
                                                                          their software – it is great. Regarding notification and collec-
     Robinson: Lehi Roller Mills was established by my
                                                                          tions, I am surprised I say this, but I think we appear more
     Grandfather in 1904 and then my father ran it and now I run
                                                                          professional doing it the way we do now than the way we did
     it; I am the sole owner. I look at it as my shift in a great busi-
                                                                          it before.
     ness. Our banking relationship had discontinued because
     of an FDIC take over. So we were in a panic mode and we              IFA: By increasing your cash flow, did you accomplish
     needed a couple things – first, someone who would act and            your goals (grow, survive, etc.)?
     give us straight answers so we knew where we were; and               Robinson: While we have steady business most of the time,
     then we needed to get it done in a hurry. TAB was all of those       many of our customers have seasonal demands plus we have
     things.                                                              a spike during the holidays. When we were with a bank,
     IFA: How did you choose TAB Bank?                                    we had a set credit line and it was very tough to meet those
                                                                          demands when our business spiked up. Now with factoring,
     Robinson: The way I like to do business, because we are
                                                                          when our sales and expenses increase, our available cash
     small, is that I like to bring people in that become partners in
                                                                          through TAB increases right along with the business.
     the truest sense – we are working toward a common goal that
                                                                          Regardless of what happened with our previous bank, we
     Lehi Roller Mills can be successful. Without TAB, it would be
                                                                          would not have been able to stay with them if we wanted to
     a real stretch for us to do that right now.  The funding process
                                                                          grow like we have. TAB and factoring have allowed us to do
     was more than simple; it was easy. There was not this effort
                                                                          that – we probably should have done it sooner.
     continually put back on us that we had to do the next thing.
     Everything was lined out for us and they happened quickly            IFA: Would you recommend factoring to other companies
     and efficiently. That was very refreshing – I had never really       in your situation?
     had an experience like that. For the kind of business we were        Robinson: Certainly; I used to have a fear of factoring
     going to do, it was made so simple and easy.                         because I really did not know what it was. What I have
     IFA: What’s most important to you in the relationship?               learned is that a lot of people factor because it just makes
                                                                          sense for their business; not necessarily that they are in
     Robinson: People ask ‘why are we in business?’ and my two-
                                                                          trouble. We found out that some of the best companies in the
     cent philosophy is that we are in business to make and keep
                                                                          country factor and now we are among them. I don’t have a
     promises. We do not want to make promises that we can’t
                                                                          fear of factoring anymore. •
     keep and we need a lot of people to help us keep the promises
     we make. My job is making the promises and TAB’s job is
     helping me keep those promises and they do that.




22 The Commercial Factor | SPRING 2011
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    sales and marketing                          By thOmAS G. SISkA



     Sales Management: The Art Of Everything
     What is a Sales Manager? Coach.                banks were making more money than           years past. So obviously there is much
     Teacher. Motivator. Glorified                  ever. For the first time in a couple of     more to picking the “right” person
     Babysitter. Nurse. Gatekeeper.                 decades, supply exceeded demand. To         given today’s new paradigm.
     Mentor. Credit Expert. Confidant.              make matters worse, the lines blurred.
                                                                                                It’s common knowledge that tigers
     Psychiatrist. Peacemaker. I’ve heard           Hedge funds were offering all kinds
                                                                                                don’t change their stripes. Now,
     all of these words used at one time or         of hybrid financing products. They
                                                                                                while people can change, why would
     another to describe the Sales Manager.         combined equity and debt, secured
                                                                                                any manager want to “bet their job”
     For anyone who has ever done the job,          and unsecured, term and revolver. All
                                                                                                on that? The formula of success is
     they know it takes a little bit of all of      this without the normal backroom
                                                                                                multi-faceted. It involves the right
     them for someone to be successful in           disciplines. And finally, the internet
                                                                                                combination of employer, process and
     the role. Different employers require a        invaded every aspect of both personal
                                                                                                sales employee. Just because someone
     varying mix of these attributes, but each      and commercial cultures. People were
                                                                                                found success at Company A, it does not
     is necessary. Further, the economic            now competing in local markets against
                                                                                                directly mean that they will also find
     impact of the Great Recession has              finance companies all across America.
                                                                                                success at Company B.
     increased the importance of some of            When a prospect spoke of “the offer you
     them. This article will describe a few         had to beat”, it was impossible to tell     Small Factors, because they cater
     of the biggest challenges facing Sales         fact from fiction.                          to the lowest volume clients, need a
     Managers today.                                                                            correspondingly higher number of
                                                    This is why is has become vitally
                                                                                                customers. This translates into hiring
                                                    important for Sales Managers to be fully
     Credit is king                                 versed in all aspects of credit. Because
                                                                                                very active salespeople who can attract
     During the ‘80s, few businesses outside                                                    a lot of opportunities. It also means
                                                    when salespeople can’t understand why
     of the garment and textile industries                                                      hiring the ones who are willing to walk
                                                    your company won’t “match” (or beat)
     knew what factoring was, much less             the competition, the Sales Manager          away quickly from “low probability”
     where to find it. Even the referral            must be able to articulate how the          prospects. For small factors, spending
     sources, such as bankers, accountants,         particular needs of the prospect may be     an inordinate amount of time trying
     lawyers and consultants, needed to be          better served by someone else. Then,        to squeeze one extra customer onto
     educated on the availability and uses of       impart this lesson on the salespeople       the books is not going to translate
     factoring. So “selling” mostly involved        so they can better discern the “high        into closing a high number of deals.
     spreading the word. Once done, the             probability” prospects from the low         Conversely, the larger factors are going
     companies in need would find the               ones in today’s kaleidoscope of financial   to have a lower quota when it comes to
     factor. Because supply far exceeded            alternatives.                               number of deals closed. But because
     demand, we had our pick of the best                                                        the larger clients generate a corre-
                                                    In addition, not every factor does all      spondingly larger amount of annual
     opportunities.
                                                    things exactly the same way as every        income, every deal counts regardless of
     In the 1990s, the first nationwide             other factor. By knowing the details of     how much time it takes to close. So the
     banking collapse in our generation             the firm’s credit appetite and backroom     personal traits of being detail oriented,
     occurred. Defaulted loans were                 capabilities, a Sales Manager can help      patient and persistent are required
     everywhere, and the way the Federal            salespeople differentiate their offering    when hiring in this niche.
     Government handled the fallout,                to win some opportunities where the
                                                                                                                      Continued on page 33
     borrowers had to find alternative              competition’s product is seemingly
     funding quickly. Factoring was fast            alike.                                                           Thomas
     and easy, and filled the gap effectively.
                                                                                                                     G. Siska is
     As the ‘90s rolled towards the end, the        understand Human Nature                                          President
     economy was booming. Money sources
                                                    It used to be that simply hiring highly                          & CEO of
     were popping up everywhere, offering
                                                    motivated people was enough to build                             Working
     all kinds of alternative solutions. But
                                                    a successful sales force. That day has                           Capital
     demand still outstripped supply, and
                                                    passed. Today, hiring is much more                               Solutions, Inc.,
     sales was all about staying visible in
                                                    complicated. Working hard no longer                              a subsidiary
     the market so those businesses in need
                                                    guarantees success. In fact, I would                             of WebBank.
     could find you when they came looking.
                                                    be willing to bet that over 90% of the      Tom is a 24 year industry veteran
     Then the century turned. 9/11                  salespeople in the factoring industry       who has built several factoring
     happened and the economy took                  are working harder today than they ever     operations. He can be reached at
     another dip. But capital sources               have in their entire careers. And most      Tom.Siska@WebBank.com or
     continued to proliferate and the               are experiencing less success than in       847-297-3673.



24 The Commercial Factor | SPRING 2011
       what’s new at ifa
     IFA 2011 TRAINING SCHEDuLE
     THE LAW AND BuSINESS OF FACTORING                                  • Assessing bank/trade references, payment history and
     WITH BOB ZADEk, ESq.                                                 financial statements
     June 6th & 7th, 2011                                               • Utilizing the internet to access updated information
     Planet Hollywood Resort and Casino,                                • Determining frequency for debtor credit evaluations
     Las Vegas, NV                                                      • And more!
     Fee: $1495 ($1595 for Non-IFA Members)                             Instructors:
     Bob Zadek’s information-packed 2-day course - complete with        Yesinne Alvarez, Vice President of Client Services, Smyyth
     a full set of superior forms Bob developed - is designed to help   Alex Cote, Vice President of Marketing, Cortera
     novices and seasoned factoring professionals, attorneys, and       Brad Magill, Esq., Attorney, The Collection Law Group, Inc.
     accountants build and strengthen their factoring know-how.         Gen Merritt-Parikh, Vice President, Allied Affiliated Funding
     His unique program devotes considerable time to revenue            George Thorson, Sr., Credit Officer, Advance Business Capital
     enhancing techniques and will increase your awareness of the
     factoring industry’s challenges and opportunities.
                                                                        TRANSPORTATION FACTORING MEETING
     This powerfully presented program provides the opportunity         August 25th & 26th, 2011
     to learn about the most recent and relevant legal issues in        Hyatt Regeny on the Riverwalk
     today’s factoring industry.                                        San Antonio, TX
                                                                        Fee: $795 ($845 for Non-IFA Members)
     HuMAN RESOuRCES FOR THE ENTREPRENEuRIAL
     FACTOR TRAINING COuRSE                                             This meeting will feature various speakers and plenty of
                                                                        time for networking. We will begin with a welcome reception
     June 16th & 17th, 2011
                                                                        on Wednesday evening. Thursday will begin with a lecture
     Planet Hollywood Resort and Casino
                                                                        followed by a group discussion. There will be another speaker
     Las Vegas, NV
                                                                        from the transportation industry with additional time for
     Fee: $945 ($995 for Non-IFA Members)                               discussion. Following the lecture we will have a group dinner.
     Human Resources are the most important commodity in any            Friday we will focus on credit with a group credit discussion.
     company. Regardless if you are a new or older well established     We will finish up with lunch on Friday. This meeting will also
     company, understanding the complexities and dynamics               feature an exhibit hall with products and services for trans-
     of HR in today’s world is essential to doing well in any type      portation factors.
     of industry. All successful finance companies realize early        Guest Speakers:
     on that acquiring, managing and monitoring one’s human
     resources is the lifeblood and core of their business.             Henry E. Seaton, Esq., Attorney, Seaton & Husk, L.P.
                                                                        Other Speaker TBA
     In HR for the Entrepreneurial Factor, you will learn how
     to find and keep good employees, manage and control                Moderators:
     human resources and how to weigh the cost elements of a            Diana Clover, President, D&S Factors
     HR Department versus outsourcing these services. Finally,          Tim Valdez, Chief Lending Officer, Transportation Alliance Bank
     you will learn and understand the legal aspects of human
     resources in today’s litigious society and what legal steps and    Legal Council:
     policies are necessary to not only protect yourself but also the   David Jencks, Esq., Attorney, Jencks & Jencks
     assets of your company as a whole.
     Instructors:                                                       ACCOuNT EXECuTIVE / LOAN OFFICER TRAINING CLASS
     Mitchell Haber, Vice President, Enterprise Solutions               October 18th  & 19th, 2011
     Bob Levinson, Esq., HR Attorney, Levinson, Arshonsky & Kurtz       Planet Hollywood Resort and Casino,
     David Rains, President, Commercial Finance Consultants             Las Vegas, NV
     Mark Sinatra, President & Chairman, Staff One
                                                                        Fee: $845 ($895 for Non-IFA Members)
     Moderator:
                                                                        • Invoice Verification Procedures
     TBA                                                                • Checking the Paper Trail
                                                                        • Reviewing and Approving Debtor Credit Limits
     CREDIT & COLLECTIONS–                                              • Dealing with Credit Memos
     THE ART OF ALWAyS GETTING PAID                                     • Reserve Management
     July 21st & 22nd, 2011                                             • Management of the Accounts Receivable Aging
     Planet Hollywood Resort and Casino                                 • Monitoring Tax Payments
     Las Vegas, NV                                                      • Collection Procedures
                                                                        • Specific Industry Concerns and Pitfalls
     Fee: $945 ($995 for Non-IFA Members)                               • And more!
     • Building debtor files
                                                                        Instructors:
     • Validating account debtor contact information
     • Reviewing debtor credit reporting to determine                   Jay Atkins, President, First Growth Capital
       creditworthiness                                                 Darla Auchinachie, Consultant



26 The Commercial Factor | SPRING 2011
SMALL FACTORS WORkSHOP                                           • Establishing your ‘Piece’ of the Market
October 20th  & 21st, 2011                                       • Protecting Your Turf
Planet Hollywood Resort & Casino,                                • Selling Tactics
Las Vegas, NV                                                    • And More!
Fee: $645 ($695 for Non-IFA Members)                             Instructors:
Small Factors have unique needs. This workshop is designed to    Thomas Siska, President & CEO, Working Capital Solutions, Inc.
give small factors a forum to discuss and learn. Emphasis will   Kevin O’Hare, President, Graystone Capital/ 1-800-563-1895
be on round table discussion, networking and education.
• Locating working capital                                       PRESIDENTS / SENIOR EXECuTIVES MEETING
• New and innovative technologies                                January 26th  & 27th, 2012
• Risk mitigation in the present economy                         JW Marriott Guanacaste Resort and Spa
• Legal issues                                                   Costa Rica
• Marketing                                                      Fee: $995 ($1095 for Non-IFA Members)
• Making your business mobile
• New products to offer                                          Presidents and Senior Executives of factoring organizations
• Networking                                                     have unique needs. One of the best ways to help with your
                                                                 strategic planning is to spend time discussing those issues
Moderators:                                                      with other Presidents and Senior Executives in the factoring
Jeff Callender, President, Dash Point Financial Services, Inc.   industry. This meeting is designed to facilitate that discussion.
Ryan Jaskiewicz, President, K & L Finance Company, LLC           We will be discussing specific topics that are of concern to
Legal Council:                                                   Senior Executives.
David Jencks, Esq., Attorney, Jencks & Jencks, P.C.              • State of the Industry
                                                                 • Debtor Credit Issues
                                                                 • Raising Capital through Private Equity
SALES & MARkETING TRAINING CLASS                                 • Work-Outs
October 27th  & 28th, 2011                                       • Compensation Issues
Planet Hollywood Resort & Casino,
Las Vegas, NV                                                    Moderators:

Fee: $945 ($995 for Non-IFA Members)                             Cole Harmonson, President, Far West Capital
                                                                 Debra Wilson, President, Vertex Financial, Ltd.
• Increase Your Hit Ratio
• Developing More Business in a Bad Market                       Legal Council:
• The Basics of Marketing                                        Mike Ullman, Esq., Principal, Ullman & Ullman, P.A.
• Developing a Marketing Plan



  Please visit www.factoring.org for online registration.
  Or contact IFA at info@factoring.org / 1-800-563-1895

 IFA CALENDAR OF EVENTS
 JuNE 6-7 The Law & Business of Factoring, Planet Hollywood Resort & Casino, Las Vegas, NV
 JuNE 16-17 Human Resource for the Entrepreneurial Factor, Planet Hollywood Resort & Casino, Las Vegas, NV
 JuLy 21-22 Credit & Collections - The Art of Always Getting Paid, Planet Hollywood Resort & Casino, Las Vegas, NV
 AuGuST 24-26 Transportation Factoring Meeting, Hyatt Regency on the Riverwalk, San Antonio, TX
 OCTOBER 18-19 Account Executive & Loan Officer Training, Planet Hollywood Resort & Casino, Las Vegas, NV
 OCTOBER 20-21 Small Factors Workshop, Planet Hollywood Resort & Casino, Las Vegas, NV
 OCTOBER 27-28 Sales & Marketing Training, Planet Hollywood Resort & Casino, Las Vegas, NV
 JANuARy 26-27, 2012 2012 Presidents and Senior Executives Meeting, JW Marriott Guanacaste, Costa Rica
 APRIL 18-21, 2012 2012 Factoring Conference, Hyatt Regency, Huntington Beach, CA

                                    FOR DETAILS ABOuT IFA EVENTS, PLEASE VISIT WWW.FACTORING.ORG



                                                                                        The Commercial Factor | SPRING 2011 27
       what’s new at ifa
                                              Next Step: Outreach Program
                                              to Obama Administration
       By GAGE L. pRIcE, pRESIDENt, mp StAR fINANcIAL

       In 2009, the American Factoring Association (AFA) was founded      language that explicitly or inadvertently harmed factors.
       to promote our industry in general and to help it navigate the     The AFA is pleased to report that it has been very successful in
       on-going legislative and regulatory process in Washington, D.C.,   educating our Members of Congress about our industry and,
       particularly in the aftermath of the economic crisis.              most importantly, it is pleased to report that the Dodd-Frank
       The AFA is supported by factors who firmly believe that the        Act does not contain any language directly detrimental to our
       industry must track issues such as financial reform and work       industry.
       to promote the industry. Since its inception, the AFA has been     With that objective achieved, the next step will be an outreach
       fulfilling its mission by retaining the Jones Walker law firm to   program to the Obama Administration and the regulatory
       assist the AFA in actively engaging Members of Congress and        agencies that craft the regulations. In the coming months, the
       their staffs to communicate our message as an industry on:         AFA will continue to promote the industry and review these
       • How factors operate in the marketplace;                          proposed regulations to ensure that they do not harm, inten-
                                                                          tionally or inadvertently, our industry. As part of this effort, the
       • How factors conduct their due diligence; and
                                                                          AFA will continue to meet with key Members of Congress to
       • How factors are a critically important delivery system for       develop additional support for factors.
         credit flow to small businesses.
                                                                          None of this is possible without the economic support from the
       The year 2010 was a chaotic year of changes within the             factoring industry. Should you agree that the AFA’s mission is
       financial and banking industries culminating in the passage of     critical, we would urge you to contact us at www.americanfac-
       the Dodd-Frank Act. Our main objective was making sure that        toring.org/donations.asp or call us at 888-425-2119 and help us
       the bill that ultimately became Dodd-Frank did not include         move the AFA’s agenda forward. •




                                                 2011 MEMBERS & DONATIONS                                                        As of 3/28/11



     Diamond Member ($10,000+)                     New Century Financial                          Bronze ($500 - $999)
     Crestmark Bank                                Porter Capital                                 Brookridge Funding
     D & S Factors                                 PRN Funding, LLC                               Business to Business Capital Corp.
     International Factoring Association           Sunbelt Finance                                Camel Financial
                                                   United Capital Funding Corp.                   Chesapeake Bank
     Platinum ($5,000 - $9,999)                                                                   Dash Point Financial Services, Inc.
                                                   Silver ($1,000 - $2,499)
     Advance Business Capital                                                                     Entrepreneur Growth Capital
     Far West Capital                              Commission Express National                    J & D Financial Corp.
     Gulf Coast Business Credit                    Dorado Finance LTD                             Orange Commercial Credit
     Interstate Capital Corporation                Factor King                                    Resource Business Partners
     J D Factors                                   Paragon Financial Group, Inc.                  Saint John Capital Corporation
     MP Star Financial, Inc.                       PFI Financial LLC
     RMP Capital Corp.                             Premier Trade Solutions, Inc.                  Other (under $500)
     TBS Factoring Service, LLC                    Spectrum Commercial Services                   Ecuadescuento S.A.
     Vertex Financial Corporation                  Company                                        Epstein, Becker & Green, P.C.
                                                   TemPay, Inc.                                   Fuller Business Funding
     Gold ($2,500 - $4,999)                        The Hamilton Group                             RMJ Capital
                                                   Transportation Alliance Bank, Inc.             Stonebridge Financial Services, LLC
     Federal National Payables, Inc
                                                   Ullman Ullman, P.A
     Goodman Factors
     Great Plains Transportation Services
     Hartsko Financial Services, LLC
     Nationwide Capital Funding, Inc.


28 The Commercial Factor | SPRING 2011
                                                   Our Preferred Vendors have undergone a screening and evaluation process. When you contact the
                                                   Preferred Vendors, you will need to indicate that you are an IFA member to receive your benefit.
                                                   If you offer a good or service to the Factoring Industry and are interested in applying for Preferred
                                                   Vendor Status, please contact the IFA at 805-773-0011.

                                                                                                                                   first step is a credit worthy Purchase Order.
Certified email                                                   Credit
                                                                                                                                   718-229-0440 • www.hartsko.com
RPost                                                              Ansonia Credit Data                                             reitelberg@hartsko.com • dseelenfreund@hartsko.com
                                                                                                                                   IFA members will receive a 12% commission. Members will
RPost’s Registered Email services allow factors to end            Ansonia Credit Data is a leading provider of affordable          also receive right of first refusal for deals in which a factor
disputes attributed to missing, misplaced or denied receipt       business credit reports. They understand the unique needs        is not previously involved.
of notification emails for notices of assignment, notices of      of ABL/Factoring companies. With no set-up or annual
default, borrowing base certificates, and other important         fees, Ansonia’s reports feature real-time access to a global
notifications. It also helps speed invoice collections with       database on companies of every size, industry and market         reCruitment agenCy
proof of invoice delivery irrefutably starting the accounts       segment. Whether you’re looking at a company in the USA,
receivable aging clock.                                           Canada, Mexico or beyond, Ansonia credit reports are             Commercial Finance Consultants
(619) 584-4088 • www.rpost.com/partners/ifa                       priced at a low $8 with a substantial discount offered for       Established in 2002, CFC is the premier provider of human
pfunchess@rpost.com                                               participation in their A/R data exchange.                        talent to the factoring industry. CFC’s goal is to provide their
IFA Members receive a $10 discount per 100 pack. Also,            855.ANSONIA (855)267-6642 • www.ansoniacreditdata.com            clients with the best available human capital and the most
the first order from each company will be doubled.                IFA Member Benefits: 20% off the Alert System. The Alert         current industry information to assist in accomplishing
                                                                  System sells for $25 per month. In the event that the Alert      their growth potential.
                                                                  System is discounted or offered in other promotions, an
Consulting
                                                                  additional benefit to IFA members may be required.
                                                                                                                                   469-402-4000 • www.searchcf.com
                                                                                                                                   dar@searchcf.com
12five Consulting                                                                                                                  IFA members will receive an additional 60 days added to
                                                                  Experian                                                         the guarantee on all placements.
12five Consulting provides technology and social media
consulting to the commercial finance industry. Born out           Experian is the industry leader when it comes to credit
of its sister company, 12five Capital, 12five Consulting          information on small to medium sized companies.                  software
understands the technological needs of the commercial             224-698-8521 • www.experian.com
finance industry, as it was their application of these tools      Ann.Skibicki@Experian.com                                        Bayside Business Solutions, Inc.
that lead to their expertise. 12five specializes in software      IFA Members receive Experian business credit information         Bayside Business Solutions, Inc., is an established, leading,
optimization, cloud computing implementation and social           at a special reduced rate.                                       global provider of superior software applications for
media representation.                                                                                                              factoring, invoice discounting and asset-based lending.
(630) 613-7423 • www.12five.com                                   Transcredit                                                      A nimble company, Bayside is able to quickly leverage
ryan@12five.com                                                   If you are a Factor of Transportation Invoices, then our         changes in technology and finance into better tools for
IFA Member Benefit: One free hour of initial phone                Credit-Trac 3.0 would be the answer to making better             their users. Bayside prides itself on world-class service and
consultation.                                                     business decisions. Reduce your business risk and lower          responsiveness.
                                                                  your credit research expense. Currently providing Credit         205-972-8900 • www.baysidebiz.com
Darla Auchinachie                                                 Scores & Pay Trend on more than 64 million loads per year.       dmusikar@baysidebiz.com
Darla Auchinachie has been an asset to the factoring              800-215-8448 • www.transcredit.com                               IFA members will receive 10% off license fees and add-on
community for nearly twenty years. Using her experience           winston@transcredit.com                                          modules. For IFA members who are currently Bayside
in a variety of roles from account executive to operations                                                                         customers: Free one day refresher course, per year, at
                                                                  IFA Member Benefit: Free credit alerts on declining scores
manager to executive officer she has assisted many                for your entire portfolio.                                       Bayside’s training facility in Birmingham, AL.
individuals and companies with achieving their goals. As a
top-rated speaker and co-instructor for the IFA each year         Credit Card ProCessing                                           FactorFox
since 2004 she has provided education to several hundred                                                                           FactorFox is a web-based factoring software program for
professionals engaged in all aspects of the business of                                                                            factors and their clients. Any time you choose, 24/7/365, you
factoring. As a self-employed independent consultant she          ePaymentAmerican – formerly TX Direct
                                                                                                                                   and/or your clients can enter schedules online, view and
is able to keep her costs low so that in turn she can price her   ePaymentAmerica, formerly TX Direct, is the nation’s             save online reports and mutually share documents. These
services at an amount reasonable enough to make sense for         leading provider of merchant services for the factoring          are done without manual web uploads and without paying
both new entrants and existing entities.                          industry. We offer IFA members exclusive benefits with           extra for these features. FactorFox has several versions:
                                                                  our premier product, eFactorPay, which provides low-risk,        Start Up, Professional, Management, and Enterprise,
Sample services include: Introduction to Factoring                high-return options for accepting credit cards, debit cards,
Training, Operations Training, Portfolio Reviews,                                                                                  making it suitable for nearly any size factor.
                                                                  ACH and eChecks as payment from your clients and their
Operations and Staff Reviews, Portfolio Management,               customers.                                                       800-509-6088 • www.factorfox.com
Credit and Underwriting Training, Litigation Review                                                                                jeff@factorfox.com
and Advice, Expert Witness Services, and Identifying and          901-385-5335 • www.epaymentamerica.com                           IFA members will receive two months free usage of the
Negotiating with Funding Sources.                                 chunt@epaymentamerica.com                                        software. This will be given above and beyond any other
(805) 440-0812                                                    IFA Member Benefits: Member-Only Rates, Waived                   trial or usage time limits.
                                                                  Application Fees, Waived Online Statement Fee.
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IFA Member Benefit: One free hour of phone consultation.                                                                           transPortation
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                                                                                                                                   The Commercial Factor | SPRING 2011 29
     Purchasing Canadian
     Accounts Receivables
     What Should u.S. Factors Consider?
     When first asked to purchase receivables from a Canadian client, a U.S. factor is
     bound to have a number of questions. Can I use my forms? How do I perfect? What
     about Canadian taxes? Can I use the Canadian courts? What licenses will I need?
     And, more generally, what should I be concerned about when buying Canadian
     receivables? By mARtIN fINGERhut

     When first asked to purchase receivables from a Canadian           factor’s standard forms to take into account the various issues
     client, a U.S. factor is bound to have a number of questions.      described in the balance of this paper. All in all, neither factor
     Can I use my forms? How do I perfect? What about Canadian          nor seller should find that any of these changes raise signifi-
     taxes? Can I use the Canadian courts? What licenses will I         cant business issues.
     need? And, more generally, what should I be concerned about
                                                                        Licensing? It is important to appreciate the difference
     when buying Canadian receivables?
                                                                        between (i) carrying on business in Canada on the one hand
     The purpose of this article is to answer these questions,          and (ii) doing business with Canadians on the other. So long
     and to provide a general overview of the issues that a U.S.        as a U.S. factor and its agents do not carry on business on
     factor should consider when purchasing Canadian accounts           Canadian soil, but only deal with Canadian sellers and account
     receivable.                                                        debtors on a cross-border basis - such as by telephone and
     Documentation? The good news is that material changes are          email - the factor will not be “carrying on business in Canada”
     rarely required when adapting a U.S. factor’s documents to         and will not be required to be licensed under Canadian regula-
     purchase Canadian receivables or take security on Canadian         tory legislation. This is of particular importance to U.S. banks
     collateral.                                                        since they are prohibited from carrying on business in Canada
     Experienced Canadian counsel will often tighten up “sale”          without complying with the licensing requirements of the
     language in a factoring agreement to improve the likelihood        Canadian Bank Act. Canadian regulatory authorities recog-
     that a Canadian court would respect the transaction as a sale      nize that a non-Canadian company can purchase Canadian
     rather than re-characterize it as a disguised loan.                receivables, lend to Canadian borrowers and take security
                                                                        over Canadian assets without becoming subject to Canadian
     Some adjustments are also desirable to reflect differences in      licensing requirements, unless they “step over the line” and
     Canadian legislation and procedures. For example, provi-
                                                                        begin carrying on business in Canada.
     sions that deal with the consequences of the seller becoming
     subject to the Bankruptcy Code should refer to the relevant        Various activities that take place in Canada will usually not
     Canadian bankruptcy and insolvency legislation, and since          raise a licensing issue (e.g. meeting with a prospective client),
     Canada has not adopted the ACH system, the factor should           while others will be more problematic (e.g. negotiating or
     be given the general ability to debit its client’s bank accounts   signing an agreement). Issues of this nature arise on a regular
     by way of electronic transfers. Clauses should be added to the     basis and counsel should be able to provide practical advice.


30 The Commercial Factor | SPRING 2011
Canadian Taxation. Similarly, a U.S.         tax obligations - either with the client      an “annual” rate (e.g. 12% per annum
factor will not become subject to            or the tax authorities – since the lien       rather than 1% per month). If the provi-
Canadian taxation on income it earns         will generally rank ahead of the factors’     sions of a factoring agreement calculate
from purchasing Canadian receiv-             security interest on the client’s assets      interest on another basis – such as
ables so long as the factor does not         (but not on receivables that the factor       using a 360 day year – it is common to
“carry on business in Canada”. Simply        actually purchase without notice of the       add a formula that permits calculation
purchasing Canadian receivables, or          lien).                                        of the equivalent annual rate.
opening a Canadian bank account, will
                                             GuARANTEES. It is generally easier            CuRRENCy. A U.S. factor that
not in and of itself result in carrying on
                                             in Canada to obtain an enforceable            purchases Canadian receivables should
business in Canada. As with licensing,
                                             guarantee from a corporate affiliate –        consider how it will deal with the
the factor should not negotiate or sign
                                             the guarantor’s incorporating statute         currency risk inherent in using U.S.
business agreements in Canada. It
                                             and articles should be reviewed but           dollars to acquire the Canadian funds
is also important to ensure that the
                                             will rarely raise an issue. With respect      it requires to purchase Canadian dollar
factor does not have any employees or
                                             to individual guarantors who reside in        receivables – since it is likely that the
agents in Canada, since their activities
                                             Alberta, their guarantees will be valid       exchange rate prevailing when the
will be attributed to the factor. For this
                                             only if they complete a statutory form        factor obtains the Canadian funds will
reason, if a factor engages a Canadian
                                             in the presence of a notary.                  change by the time it receives Canadian
to provide leads to possible clients, the
                                             quEBEC. Quebec’s laws are modelled            dollars from the account debtor. Among
underlying agreement should clearly
                                             after the Civil Code of France, and differ    the approaches factors have chosen:
reflect that the Canadian is an indepen-
                                             significantly from those of the U.S. and      (i) entering into a currency hedge, (ii)
dent contractor who has no ability to
                                             the rest of Canada. Perhaps the four          passing any exchange losses to the
bind or contract for the factor, and that
                                             most important distinctions for a U.S.        client and (iii) depositing a signifi-
the parties have neither a principal/
                                             factor are: (i) perfection of a purchase of   cant amount of Canadian dollars in a
agent nor an employer/employee
                                             single receivables is achieved through        Canadian bank account and using the
relationship.
                                             notice to the account debtor rather           account to purchase receivables and
WITHHOLDING TAX. Canada has                                                                receive payments on the receivables
                                             than by registration, (ii) security over
virtually eliminated withholding tax on                                                    (so that exchange losses and gains
                                             the client’s other assets is created by
most cross-border payments of interest                                                     don’t arise every time a receivable is
                                             a “hypothec” under special language
between unrelated parties that act at                                                      collected, but only when funds are
                                             that should be added to the factoring
arm’s length. U.S. factors can therefore                                                   eventually repatriated to the U.S.).
                                             agreement, (iii) agreements with a
purchase the interest and finance
                                             Quebec counterparty must be in French         Canadian courts must render judg-
charge components of Canadian
                                             if they are “pre-determined” by the           ments in Canadian dollars only. This
receivables. Various other cross-border
                                             factor rather than being open for review      may result in a currency exchange loss
payments remain subject to Canadian
                                             and negotiation by the seller and (iv)        if (i) a factor sues for amounts owing
withholding tax, such as rent, dividends
                                             contracts with Quebec account debtors
and certain royalties.                                                                                         Continued on page 33
                                             should be reviewed for provisions that
PERFECTION. Every province and               prohibit assignment since Quebec has
territory of Canada, other than Quebec,      not enacted legislation to negative the
has personal property security legisla-      effect of such provisions.
                                                                                                                 Martin
tion that is modelled after Article 9 of
                                             uSuRy. U.S. factors are often surprised                             Fingerhut is
the U.S. Uniform Commercial Code.
                                             to learn that Canada’s federal usury                                a partner in
Accordingly, the rules relating to
                                             legislation is set at the relatively high                           the Financial
perfection, priority and enforcement
                                             rate of 60%. In determining whether                                 Services Group
of purchases and security interests
                                             a usurious rate has been provided for                               at Cassels
are similar to those found in the U.S.
                                             or collected, all charges and expenses                              Brock and
While the two countries’ rules are not
                                             will be taken into account, including                               Blackwell LLP
identical – such as the need to search
                                             interest, fees, commissions, costs and        and plays a leadership role on its
and file in Canada based on the law of
                                             various administrative payments.              securitization team. Martin was the
the jurisdiction where the debtor has
                                             While no Canadian case has yet consid-        founding chair of the American Bar
its chief executive office, rather than
                                             ered whether the legislation applies to       Association’s (ABA) Securitization
where it is “registered” – any differ-
                                             factoring transactions, it is prudent to      and Derivatives Subcommittee,
ences should not cause the U.S. factor
                                             assume that it may. A properly drafted        chair of the ABA’s Business Financing
any practical problems.
                                             agreement should exclude the applica-         Committee and the vice-chair of
PRIORITy. The Canadian Federal               tion of this legislation (although this       the International Bar Association’s
government has a super-priority              may not be effective) and, as an alterna-     Securitization Subcommittee.
lien over the entirety of a tax payer’s      tive, provide that any contravention is       Martin will be named one of the
property for (i) certain amounts it          unintended and that excess payments           world’s top 25 structured finance
withholds from its employees’ income         will be reimbursed or applied to other        and securitization lawyers in Legal
but does not remit to taxing authorities     outstanding obligations.                      Media Group’s 2011 Best of the Best
and (ii) unremitted sales tax. This lien                                                   Expert Guide. He can be reached
                                             INTEREST. Canadian legislation
is not required to be registered. Factors                                                  at 416-860-2969 or mfingerhut@
                                             requires that interest be expressed at
should monitor compliance with these                                                       casselsbrock.com.


                                                                                           The Commercial Factor | SPRING 2011 31
       legal factor                                By JOhN A. BEckStEAD, ESq.



     Legal Factors
     Purchase Money Security                        proceeds if the PMSI is perfected when        of inventory and if another secured
     Interests - How Do They                        the debtor receives possession of the         creditor has a prior perfected security
     Impact Factors?                                collateral or within 20 days thereafter.      interest in inventory, the other secured
                                                    For inventory, the general rule is            creditor’s interest in the accounts will
     A purchase money security interest
                                                    that a perfected PMSI has priority            have priority over the interest of the
     (“PMSI”) gives special priority to a
                                                    over a conflicting security interest in       factor. Factoring companies know
     secured lender who provides financing
                                                    that inventory, in chattel paper and          they cannot safely factor accounts that
     to acquire certain collateral. A factor
     needs to understand how a PMSI can             instruments constituting proceeds             arise from inventory which is subject
     impact the factoring relationship.             of that inventory, and in identifiable        to a prior perfected security interest in
                                                    cash proceeds of the inventory to the         the inventory. Can a subsequent PMSI
     What is a Purchase Money                       extent the identifiable cash proceeds         in inventory leapfrog the purchase
     Security Interest?                             are received on or before delivery of         money secured creditor ahead of the
                                                    the inventory to a buyer but only if (1)      factor’s interest in the resulting account
     A PMSI secures an obligation incurred          the PMSI is perfected when the debtor         receivable?
     to acquire the collateral. There must          receives possession of the inventory, (2)
     be a close nexus between the acquisi-          the purchase money secured creditor           The answer is generally no. A purchase
     tion of the collateral and the secured         sends “authenticated” (“authenticated”        money secured creditor does not
     obligation. A purchase money security          basically means signed) notice to             receive any priority interest in accounts
     interest is not created if property is         the holder of the conflicting security        resulting from the sale of inventory
     acquired on unsecured credit and a             interest, (3) the holder of the conflicting   subject to a PMSI. As always, however,
     loan is subsequently obtained secured          security interest receives the notice         there are exceptions. The purchase
     by that collateral. A purchase money           within five years before the debtor           money secured creditor does receive
     security interest can only be created          receives possession of the inventory,         priority in resulting chattel paper,
     in goods (which includes inventory             and (4) the notification states that          instruments and “identifiable cash
     and equipment) and certain software.           the person sending the notice has or          proceeds”. If a sales contract or prom-
     There cannot be a PMSI in accounts             expects to acquire a PMSI in the inven-       issory note is given for payment of the
     receivable.                                    tory of the debtor and describes the          inventory, the purchase money secured
     A special rule (UCC 9-103(b)(2)) allows        inventory.                                    creditor will have priority in those
     purchase money security interests in                                                         proceeds. “Identifiable cash proceeds”
     inventory to be cross-collateralized.          Impact on Factoring of                        do not include accounts. “Identifiable
     A seller may sell inventory (Item 1)           Inventory                                     cash proceeds” are money and checks
     to debtor and take a purchase money            These rules have a significant impact         which can be traced and identified.
     security interest in that inventory            on a factor which provides financing of
     to secure the purchase price and all                                                         A proper understanding of purchase
                                                    inventory. First, the factor will want to     money security interests will allow
     other existing and future obligations of
                                                    take the appropriate steps to establish a     a factor to navigate around potential
     debtor to seller. If that seller then sells
                                                    purchase money security interest in the
     debtor another item of inventory (Item                                                       traps of a purchase money security
                                                    factored inventory. This is especially
     2) and again takes a PMSI in Item 2, the                                                     interest and avoid any problems. •
                                                    important if there are other security
     PMSI in Item 1 also secures the obliga-
                                                    interests in inventory. Second, the
     tion owing for the sale of Item 2.
                                                    factor must monitor and be on guard
                                                    against a subsequent PMSI in inventory
     Perfection and Priority of                     - and remember that the conflicting
     a Purchase Money Security                      PMSI can be perfected up to 20 days
     Interest                                       after the debtor takes possession.                                   John A.
     There are no special requirements for                                                                               Beckstead,
     the perfection of a purchase money             Impact on Factoring of                                               Esq. is a
     security interest. A UCC Financing             Accounts                                                             partner in the
     Statement is not required to indicate          Factors sometimes become concerned                                   Salt Lake City
     that the security interest is a PMSI.          that if they factor an account receivable                            office of the
     The general rule is that a perfected           that is proceeds of inventory subject         regional law firm Holland & Hart LLP.
     purchase money security interest               to a purchase money security interest,        He can be reached at jabeckstead@
     in goods other than inventory and              the factor will lose its priority in the      hollandhart.com or 801-799-5823.
     livestock has priority over conflicting        account. This concern arises from             Information provided in this article is general informa-
     security interests in the same goods.          the well understood principle that            tion only and not legal advice. Readers are encouraged
     This priority also extends to identifiable     accounts are proceeds from the sale           to consult an attorney for specific legal advice.




32 The Commercial Factor | SPRING 2011
New Century Financial vs. Olympic Credit Fund                                     Purchasing Canadian Accounts
Continued from page 20
                                                                                  Receivables
been that if the Plaintiff were to prevail then how would the industry            Continued from page 31
contend with the takeover or payoff of any factored client? Would you,
                                                                                  in another currency, such as U.S. dollars, (ii) it
as a factor, allow an incoming factor to pay you off without any release
                                                                                  obtains judgment for the equivalent Canadian
agreement in place? Why would anyone do that without any economic
                                                                                  dollar amount and (iii) the Canadian dollar
benefit? How would you feel about defending yourself against an action
                                                                                  strengthens between the time of judgment
that required you to spend enormous sums? And, does your firm have the
                                                                                  and the time of payment. The factoring agree-
capital capacity to see something like this all the way through?
                                                                                  ment should therefore contain a provision that
This story may have ended differently if the Court ruled against both parties’    expressly requires the client to indemnify the
motions for summary judgment and the case was to have proceeded to                factor for such losses.
trial. We may never know if in fact OCF knew or should have known the EA
                                                                                  CANADIAN COuRTS. A U.S. factor is generally
account was based upon bogus invoices. However, in the event that they had
                                                                                  able to bring legal proceedings in Canada. It will
known, it is important to point out this would be a violation of the IFA’s code
                                                                                  also find Canadian courts relatively creditor
of ethics. It is expected that IFA members be honest in their dealings and not
                                                                                  friendly for a number of reasons: (i) court costs
engage in any activity that would lead to a conflict of interest.
                                                                                  are determined on the English “loser-pay”
This lawsuit was unfortunate for both factoring companies. In particular,         model, under which the unsuccessful party
the Plaintiff expended much time and energy to recover from the monetary          must pay a portion of the prevailing party’s legal
loss due to the client’s accounts being fraudulent. As to the Defendant,          costs, (ii) commercial matters are almost always
their reputation suffered due to a fraud they may very well have not known        decided by a judge without a jury (whether or not
they had on their books. The industry at large should be thankful they saw        the parties’ agreement contains a jury waiver),
this through if only because the end result provided for such a fascinating       (iii) punitive damages are extremely rare and
education about the complexities and the art of factoring.                        (iv) U.S. judgments are generally enforceable in
And for the takeaways:                                                            a Canadian court so long as the defendant was
                                                                                  given proper notice of the action and an opportu-
•Does your firm employ a policy that defines how an employee commu-               nity to defend.
nicates with third parties (such as an incoming or outgoing factor) – if
not, it should.                                                                   GOVERNMENT OBLIGATIONS. The obligations
                                                                                  of certain Canadian governments – such as
•Were your payoff agreements authored by a seasoned factoring                     the Province of Ontario – are freely assignable.
attorney? IFA members can download an approved payoff form for use or
                                                                                  However, the Federal Government and certain
to compare with your existing form.
                                                                                  provinces have enacted legislation that prohibits
•Even though there was clearly a client fraud, the Court found that was           the sale or pledge of their receivables without
not a consideration in this particular case. Yet this case reinforces that        consent.
fraud can happen to even the most seasoned companies, both on the
front end of a relationship, or if you’ve factored the client for years.          CONCLuSION. U.S. factors have found that
                                                                                  the Canadian legal, tax and regulatory rules
•It’s never a good idea to place reliance on anything unless you have first       are relatively favourable, and don’t impede the
consulted with counsel or are otherwise sure to have enough evidence              cross-border factoring of Canadian receivables. •
that satisfies the points of the law you may use in seeking damages after
the fact.
•In business, you can be sued for almost anything at any time. Make
sure that you maintain books and records that can support your case in            Sales & Marketing
litigation, as well as the financial wherewithal to commence or defend            Continued from page 24
litigation. Consider that this case involved very high power corporate
attorneys as well as consultants and experts for each side, investigators,        Conclusion
and depositions. Then, you may conclude that both sides spent signifi-
                                                                                  With excess liquidity still in existence and
cant sums, the amount which combined likely exceeds the initial alleged
damages in this case.                                                             banks not yet fully purging their stockpile of
                                                                                  poor commercial borrowers, things remain very
•It is important to note a part of the strategy which was employed by the         competitive. Every employee and manager
Plaintiff in this case. The Plaintiff attempted to lay the foundation for         must do things differently and better if your
negligent misrepresentation, fraud and fraud for non-disclosure. For              factoring company is to remain in the game. The
the purposes of this strategy, it would seem that in order for the Plaintiff      sales manger that drives the origination side of
to seek exemplary (punitive) damages they would have to prove fraud               the business is more important than ever. This
by the Defendant. The gamble on proving fraud in this case could have
                                                                                  person must be as astute on the credit side as all
resulted in OCF paying damages to NFC in the amount of three times
                                                                                  but the most senior credit managers. For how
actual damages (or in this case $2.865MM).
                                                                                  can salespeople be expected to understand the
Due to deadline constraints, there was not sufficient time to contact             strengths and weaknesses of their company’s
either the Plaintiff or the Defendant in this case in order to provide            offering if their boss does not? Further, with
them opportunity to voice their side of this story.  As a result, the IFA         every factor having access to the same pool of
would welcome their comments and if the parties so desire, they may be            salespeople, it is the person that best matches
provided with space in the next edition of the Commercial Factor.  The            the candidates success traits with the particulars
IFA LinkedIn group may also be an appropriate venue to create a discus-           of the factor that will win the hiring game. And
sion about this case. •                                                           to the victor will go the spoils. •


                                                                                           The Commercial Factor | SPRING 2011 33
     Purchase Order
     Financing “On Trial”
     Richard Eitelberg offers his perspective on purchase order financing considering
     the reality of the risk undertaken by the financier and the subsequent high rates
     involved. For many, it can be a helpful last resort when other financing options have
     been exhausted. By RIchARD EItELBERG, cpA


     Before I launched Hartsko Financial Services eight years ago,       I understand that customers are only going to use purchase
     I worked as a certified public accountant and later as a chief      order financing when they absolutely need it and have no
     financial officer. I feel I understand the mindset of others with   other alternative. Plain and simple: They are not going to pay
     these titles.                                                       the rates associated with purchase order financing if they can
                                                                         figure out a way to get cheaper financing. I am never offended
     I work very closely with a number of factors, asset-based
                                                                         or resentful when a prospective customer informs me that
     lenders, bankers, brokers, private equity executives and small
                                                                         they have discovered a less costly alternative that meets their
     business owners. Based on my abundant experience and
                                                                         needs. They should go for it! The customers using us are often
     relationships with these people, I feel I have a strong compre-
                                                                         distressed and frantic. They know that their ability to access
     hension for who they are and what they represent.
                                                                         purchase order financing becomes their only hope to save a
     I must confess my frustration when all who I have identi-           profitable transaction.
     fied, raise protest when they find out the rates and fees for a
                                                                         (There is a school of thought among some business owners
     purchase order financing transaction. This protest may be
                                                                         that paying some extra to have a steady, consistent money
     disguised in the form of a sarcastic (intended to be humorous)
                                                                         stream through purchase order financing spares them
     remark, a mouth-opening gasp, or raised eyebrows. But I
                                                                         from the aggravation and wasted time they may otherwise
     know what these people are thinking. Despite all of their
                                                                         encounter. There is wisdom and hindsight in this belief.)
     education and experience in finance, their natural instinct
     is that purchase order financing must be a rip-off where the        The best description I can provide about how purchase order
     customer is getting gouged.                                         financing suffers from an unfounded, unfair stigma is when I
                                                                         visited a small business owner to look over his workplace and
     As you can see, I am not afraid among my colleagues and peers
                                                                         close a deal. At the meeting, his accountant reviewed all of the
     who read this publication, to put purchase order financing          paperwork and documents with the comment that: “You are
     “on trial” and to rigorously examine it from all of the objec-      charging an awful lot of money….fees which are outrageous in
     tions raised. The emotional rejections over the proposition of      comparison to the going rates of other lenders…”
     deploying purchase order financing, discourage and prevent
     a number of business owners from going forward. Sadly, the          My comeback was: “I am not the least bit offended if your
     profitable deal that these business owners and their financiers     client does not want to use me because I recognize that he is
     could execute gets aborted!                                         only using me as a last resort since he has no other place to
                                                                         turn. Your client is bringing me a deal where he is going to
     Being up front and transparent, purchase order financing is         earn a minimum profit of 30%. He does not have to put up any
     expensive mainly because of the high risk associated with this      cash. Yet, he expects me to put up my money and take a variety
     credit. For illustration, a punch list of Hartsko’s requirements,   of risks in the process where I am largely responsible for all
     costs, and fees are:                                                the checkpoints. For this, I am going to earn about 4% and he
     • Application submitted, no fee                                     will earn about 25% when everything is completed.”
     • Proposal due-diligence fee, varies from $1500-$2000               I continued my argument with the accountant: “Let’s reverse
       (Canadian, $2000-$2500)                                           our roles. I will bring you a similar deal. You put up your
     • Letters of Credit opening/closing fees                            money, tie up your cash while undertaking responsibility and
     • Wiring fees                                                       risk. I will put no money down (other than documentation and
     • Fed Ex fees                                                       application fees). When the deal is finished---you can make
     • Possible legal fees (if agreements and covenants are outside      4% and I will make 25%.”
       of conventional, normal transactions)
     • Annual monitoring fee                                             “Now I understand what you are saying!” this accountant
     • Current economic marketplace range                                declared in his epiphany.
       of fees for money, between 3-4 ½%                                 Users of purchase order financing should not get fixated on
       per month, of purchase order                                      the rates, which are not interest-rate driven, but instead,
       transaction                                                       fee-based. The users need to keep in mind that this financing


34 The Commercial Factor | SPRING 2011
they deem expensive, is only temporary,     they graduate to financing with factors,                         Richard
typically lasting 30-120 days. It is not                                                                     Eitelberg, CPA,
                                            asset-based lenders, and bankers. They
burdening a business with a permanent,                                                                       is the founder-
                                            no longer need me because I was able                             president
long-term situation and consequences.       to help them overcome their problems
Again, there’s a threshold of 30% in                                                                         of Hartsko
                                            and distress. From the point where                               Financial
minimum gross profit of a deal, where
                                            they hit bottom-I was able to improve                            Services, LLC,
purchase order financing becomes
effective.                                  their business strength and capacity.                            a Bayside, New
                                            It is gratifying for me to do this, while                        York purchase
In closing, everyone in the purchase                                                                         order financing
                                            running a purchase order financing
order financing process has to be                                                       firm which handles about $200m in
                                            firm which has seen steady growth in
respected and has to make money. This                                                   annual transactions. Richard can be
includes: the purchase order financier,     volume every year since it first began. •
                                                                                        reached at reitelberg@hartsko.com
the customer, their lender, and of                                                      or 718-229-0440. www.Hartsko.Com
course, the end company or retailer that
issued the purchase order.
If this does not happen by way of this
opportunity, then all parties in this
process have been poorly served.
There are other benefits and valuable
features a purchase order financier
should be bringing to his client. For
example, we become a backstop for bad
deals. Any deal that has a 20% or less
gross profit margin where the client
does not have their own money to put
into play (thus, requiring someone
else’s money) is actually an inferior
quality transaction which should not be
carried out in the first place!
Hartsko, like some purchase order
finance firms, has many years of
experience in importing, exporting,
procurement, inventory, domestic
manufacturing, distribution, and
international shipping. We can mentor
unsophisticated entrepreneurs and
business owners. There are lots of
ways these businesspeople can “lose
their shirts,” without our guidance and
knowledge, by either paying a lot more
than necessary or not seeing red-flags.
Clients and their financial services
associates need to put purchase order
financing into its proper perspective:
If the client has their own funds or
a positive bank relationship which
affords better rates and terms-it doesn’t
make sense to use firms like Hartkso.
Purchase order financing is for overflow
and extra opportunities to mitigate
pressures. Perhaps, one deal will be
done with us and one without us, as a
maximization of resources. This way, a
business owner never has to pass up a
good opportunity.
It gives me great satisfaction in seeing
customers with whom I have done
repeat and multiple purchase order
financing deals actually leave me and
in effect, earn cheaper financing as



                                                                                        The Commercial Factor | SPRING 2011 35
     small ticket factor                       By JEff cALLENDER




     Client Gall and
     Diversion of Funds
     Given the somewhat sullen title of this      have proof the debtor has received the        payment requirement: they must pay
     article I’d like to start on a positive      notice. We follow up with a phone call        us despite having already paid the
     note: the vast majority of my factoring      to make sure the debtor understands           client. But as you can imagine getting
     company’s clients are good, decent,          they must pay us, not the client, and         a debtor to pay twice is never easy and
     hard-working people and factoring            have made the address change in their         most debtors aren’t exactly thrilled at
     works very well for both their compa-        system. So then how does payment over         the idea. Some become hostile at the
     nies and mine.                               notice happen and why would a debtor          suggestion.
     However, having been in the industry         do so in the first place?
                                                                                                You may be able use the double payment
     for about seventeen years now, I’ve          Smaller clients usually have a personal       requirement as leverage to get the
     observed something about myself and          relationship with their customers, and the    debtor to help you move the client to pay
     virtually all of my factoring colleagues     tendency is for the debtor to do whatever     what is owed, but if the client is broke
     who have been in the business for years.     the client tells them regarding payment       or has disappeared (either is likely),
     The longer we work as factors, the           – NOA or no NOA. Especially if the client     then you need to work with the less
     more cynical we tend to become. This         is new to us, or the debtor doesn’t really    than enthusiastic debtor. Not fun for
     cynicism is an occupational hazard and       understand the NOA’s warning about            anybody. And upon learning what the
     results from our experiences with a          paying over notice, the likelihood of their   client did, the debtor quickly drops the
     small number of clients who are devious,     complying with the dishonest client’s         client as a vendor. They understandably
     deceptive, and quite willing to rip us off   request is pretty high. This is very bad      don’t want to deal with such a dishonest
     without any pang of conscience. While        for us small factors but unfortunately        person any more, which unfortunately
     people like this are the exception rather    quite common. What’s more, after a            makes all the harder getting the debtor
     than the rule, we old-time factors still     few months (or less) most debtors have        to help make the client pay.
     end up rather cynical.                       forgotten about the NOA anyway.
                                                                                                When debtors are informed they’re
     In my own business over the past year        Another reason debtors pay over               legally responsible to pay the factor
     or so I’ve noticed a definite uptick         notice is the person who received             after paying the client, they often
     in clients who have intentionally            and acknowledged the NOA may be               consider the issue the factor’s problem
     committed fraud. The pattern, at least       the manager and/or one of many                not theirs, and simply don’t return our
     among my small clients, is not what          people in an AP department, and that
     you read about in factoring journals                                                       calls. At that point it becomes a job for
                                                  person doesn’t adequately notify other        a collection attorney. Like any collec-
     describing schemes for millions of           staff people that the NOA is in place.
     dollars that involve fraudulent invoices                                                   tion situations you’re most likely to get
                                                  Alternately, that person may leave and/       paid from people who cooperate. If they
     and/or collusion with dishonest or           or other new staff members arrive who
     phony debtors. Rather, the most                                                            ignore you, stonewall, get legal counsel,
                                                  have no knowledge of the NOA.                 or in any way don’t fully cooperate,
     common fraud I experience as a small
     factor is diversion of funds. That is, a     When debtors pay over notice we are           getting your money back can be very
     client submits an invoice (or several)       within our rights to enforce the double       difficult if not impossible.
     and then instructs the debtor to
     pay him/her (the client) directly.
     Occasionally the client will lie and say                               In addition to running his factoring business
     he/she’s no longer factoring but most of                               (DashPointFinancial.com) which buys receivables of
     the time that’s not even necessary. The                                very small businesses, Jeff Callender has written
     debtor obliges, pays the client who then                               several books and ebooks on factoring which can be
     disappears from our radar, and by the                                  obtained from DashPointPublishing.com as well as
     time we realize what’s happened, the                                   the IFA website’s Store. He also is the developer of
     client is gone.                                                        FactorFox software (FactorFox.com), a web-based
     Before you ask…yes, we routinely give                                  program used by factors to track their receivables. You
     debtors the properly worded Notice                                     can reach him at 877-620-3699 or via email at jeff@
     of Assignment, and yes, we routinely                                   DashPointFinancial.com or Jeff@FactorFox.com.



36 The Commercial Factor | SPRING 2011
Let me share two stories from my own
recent experience.
A small janitorial company had
factored with us for nearly a year and
the account was never smooth. He
occasionally submitted invoices that
included some work already billed on
previous invoices, the debtors weren’t
happy with his work, and we were
winding down our factoring relation-
ship. We had stopped funding the
client which frustrated and angered
him because it put him in a financial
bind. But we decided that based on his
frequent (and probably not accidental)
billing errors and debtor comments
about his lack of integrity, he wasn’t
someone with whom we wanted to
continue doing business.
We spent a month or so collecting the
remaining payments and were down
to just two invoices still owed by a
large debtor. The NOA was clearly in
place and known to the AP manager
in the national headquarters; she had
given us several verbal assurances they
indeed would pay us, not the client.
What happened? When the client saw
there were only two unpaid invoices
remaining, he went to the company’s
local office, told them to pay him, and
without consulting the AR manager at
headquarters, they did. The client of
course instantly disappeared.
Another client, a grant writer for
nonprofit debtors, submitted her first
two factored invoices to a long-time
customer totaling about $8800, and
indicated they would pay us “the first or
second week” of the following month.
The invoices didn’t pay when expected
so we contacted the debtor to see what
had happened. We learned the client
had given the debtor a deadline to pay
by the 25th of the month, which the
debtor agreed to do. The client then
contacted the debtor’s bookkeeper on
the 24th, told him to pay us $3500 and
pay her (the client) $5300 since her
bank account was overdrawn and she
“needed it.”
We had given the NOA to the President
of the nonprofit but she did not inform
the bookkeeper of the NOA. For that
matter, she didn’t even remember
receiving the notice, though we had
proof she had received it. Predictably,
the bookkeeper did exactly as
instructed by the client and of course
the client immediately stopped
returning our calls.


                                            The Commercial Factor | SPRING 2011 37
     Over the past year or so it seems           if other small factors have noticed a        Two, the amounts involved aren’t too
     such instances have occurred more           similar trend over the past year or so.      big and can be released without proper
     frequently than they did before then. Is                                                 checks and balances by the people
                                                 While all factors no matter what their
     this a trend? Is it the tough economy? Is                                                making the payment. Writing a check
                                                 size are subject to fraud, small factors     for a few thousand dollars doesn’t have
     it just a bad run I’m having? I honestly    may be more susceptible to this kind         the internal controls that writing a
     don’t know; I don’t think our under-        of fraud than larger ones. Why? One,         check for tens or hundreds of thou-
     writing and follow up during this time      because of the personal relationships        sands of dollars does.
     were more lax than they used to be,         between small clients and their debtors,
                                                                                              What can you do to avoid this deceptive
     though they have certainly become           the integrity-challenged client finds a
                                                                                              diversion of funds by your clients?
     much more stringent recently as a           loophole through the proper payment
     result. I would be interested to know       process, despite our notification efforts.   Realize this can happen at any time
                                                                                              by any client you have – a new one as
                                                                                              well as one you’ve had for years. It can
                                                                                              happen with a client in your town or
                                                                                              across the country. Clients who have
                                                                                              been with you for years and have the
                                                                                              gall to divert funds teach that you can’t
                                                                                              really trust anyone not to do it. So be
                                                                                              ever vigilant.
                                                                                              Be sure your NOA is correctly in place,
                                                                                              you have the paperwork to prove it is,
                                                                                              and the proper people at the debtor’s
                                                                                              company know they must pay only you
                                                                                              no matter what…which as we’ve seen is
                                                                                              still no guarantee they will pay you.
                                                                                              Have a good collection attorney in
                                                                                              your corner and give him/her the case
                                                                                              immediately. The longer you wait the
                                                                                              harder it is for the attorney to collect.
                                                                                              Most important, watch your agings
                                                                                              like a hawk and the minute something
                                                                                              looks like it’s taking a bit too long to pay,
                                                                                              or longer than it has in the past with
                                                                                              a client you’ve had for a while, don’t
                                                                                              hesitate. Contact the debtor – not the
                                                                                              client – immediately and find out if they
                                                                                              paid the client. Payment over notice
                                                                                              is likely if payment to you is later than
                                                                                              expected and you haven’t heard from
                                                                                              the client for a while. If that’s the case,
                                                                                              the client could be long gone.
                                                                                              In short, diversion of funds and
                                                                                              payment over notice are two common
                                                                                              risks of being a factor, especially a small
                                                                                              factor. We need to do all we can to avoid
                                                                                              such dishonesty, yet client gall can
                                                                                              overcome our best laid plans and proce-
                                                                                              dures. As factors, we must accept this as
                                                                                              unfortunately part of the business.
                                                                                              So be careful out there. Trust but verify,
                                                                                              keep your concentrations low, be
                                                                                              consistently diligent in your follow ups,
                                                                                              and don’t risk more than you can afford
                                                                                              to lose in any client, debtor, or invoice.
                                                                                              Because if client gall and diversion of
                                                                                              funds hasn’t struck you yet, it’s not a
                                                                                              matter of “if”….
                                                                                              That’s just the cynical old factor in me
                                                                                              speaking. •




38 The Commercial Factor | SPRING 2011

				
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