This manual reviews in-depth underwriting analyses, for use when reviewing the prospect application and supporting documents. This section covers the types of questions ANAPLANS should ask in order to qualify the prospect.
3.1 Business Questions
Industry
What does the organization do?
Ask the prospect about their business, what products or services do they provide?
Customer Base
What is their target market?
Who are their customers? Are they primarily businesses or consumers? Do they sell to any municipalities or to the government?
Sales
How much in sales do they process a month?
Are there any seasonal periods?
Management should be able to respond quickly with this figure (or on an annual basis) which will reflect his or her knowledge of the business.
Customers
How many active customers?
Do they have repeat customers, or are they one time sales?
It is preferable that prospects have a wide variety of repeat customers from an administrative and risk point a view. However, ANAPLANS can offer funding to a prospect with just one customer.
Line of Credit
Does the business have a line of credit with a bank?
Do they utilize any other financial services which may result in having their accounts previously pledged to a senior lender? If so, what is the arrangement and who is the lender?
3.2 Collateral Questions
Affiliated A/R
Do you sell to any affiliated customers?
Are any of the customers listed on the aging related to the prospect? What is the percentage or amount of sales to affiliated businesses?
Terms of Sale
What are your invoices terms of Sale?
What terms do they give their customers to pay their invoices?
Is it Net 30 Days? Net 60 Days? Do they offer extended terms?
ANAPLANS prefers to purchase invoices with terms of less than sixty (60) days. Invoices aged over 90 days from invoice date are more difficult to collect.
Consignment Sales
Do you have any sales on consignment?
Consignment or Guaranteed sales are not acceptable to ANAPLANS for funding. If all of prospects sales are on consignment, then ANAPLANS will not be able to provide a factoring solution to the prospect.
The issue with these types of sales lies in the contractual obligation of the customer to pay for the goods. If the terms of sale are consignment or guaranteed, the likelihood of being paid in full can be quite low.
Typically you will see a consignment sale when a new product is being introduced to a retail outlet. It is also customary in the textile industry to sell goods on a guaranteed basis.
Progress Billings
Are there any progress billings?
Are invoices generated as the result of a completed item or service?
All progress billings have high risk involved and should not be considered for factoring.
Any receivables that are generated against milestones during completion of a project fall under this rule.
What warranties do they offer?
What is the time frame allowed for returns of defective merchandise?
Is the prospects policy to allow product to be returned indefinitely?
Extra care should be taken by ANAPLANS when reviewing the financial statements of each prospect to determine the amount of returns incurred due to warranties.