There are currently four products offered by ANAPLANS. They are Full Factoring, Fulfillment, Purchase Order Financing and Referrals. The majority of ANAPLANS clients will be Full Factoring accounts.
8.1 New Clients
Once ANAPLANS has qualified the prospect and reviewed the application along with its supporting documentation, decide whether or not to factor a client and at what rate.
ANAPLANS will perform the following due diligence steps prior to submitting a prospect package to the Credit Committee:
1. Review the prospect and the prospect’s industry, and determine what risks are specific to that particular industry;
- Perform a Google™ internet search on the industry,
- Review the prospect’s website and
- Perform a Google™ internet search on the prospect’s principals;
2. Review the accounts receivable and financial statements (if provided);
- Sales Trends,
- Average Outstanding,
- DSO (Days Sales Outstanding),
- A/R Aging,
- Customer Concentration,
- Historical Dilution, and
- Customer Base;
3. Review the billing process:
- Terms of Sale,
- Consignment or Guaranteed Sales,
- Bill & Holds,
- Warranties,
- Advertising Allowances,
- Rebates,
- Packaging/Delivery Offsets and/or any other issues which could affect the collateral;
- The Purchase Contact.
4. Compare the Financial Statements or Tax Returns for the last 2 years and the most recent interim period; and
5. Determine what, if any, additional information is needed from the prospect in order to proceed.
During the initial review stage, ANAPLANS will determine if this is a prospect that is eligible for a factoring relationship. In the next step, ANAPLANS will seek to qualify the principals and determine if their accounts are credit worthy.
8.2 The Term Sheet
ANAPLANS will send a term sheet to the prospect at the time of obtaining the application or after reviewing the application.
The purpose of the term sheet is to make a tentative offer of factoring to the prospect and to show that they are pre-qualified for the program.
ANAPLANS can use the Term Sheet as a tool in the sales process by presenting it to the prospect to take the prospect “off the street”. A prospect may be less likely to shop around when they have a bona-fide offer from ANAPLANS.
The Term Sheet is not necessary for every prospect; however, ANAPLANS may find it useful in their sales process.
The Term Sheet outlines the Advance Rates and Fees involved with entering into a factoring relationship between the prospect and ANAPLANS. The Term Sheet will request a set up or due diligence fee from the prospect, so that ANAPLANS can order Public Records Searches from Service Provider and ultimately enter into a factoring relationship with prospect.
8.3 Setting the Advance Rate
Setting the Advance Rate is determined as a result of deducting the desired Reserve Percentage from the face value of purchased invoices. ANAPLANS will have performed enough due diligence at this point to have a good idea of the value of the prospects invoices, and therefore the desired Reserve Percentage to hold against the invoices.
Generally Advance Rates in our program start at 80%. ANAPLANS may choose to go higher if the prospect has historically low dilution. In no event should ANAPLANS offer an Advance Rate higher than the expected fees.
ANAPLANS should take two items in to consideration when determining an Advance Rate for a prospect:
1. Dilution, which is any historical non-cash reductions to collateral (accounts receivable). In other words the percentage of sales reduced for any reason other than payment by client’s customers.
Dilution can consist of prompt pay discounts, returns, warranties, co-op advertising allowances, among others. ANAPLANS will use dilution as a factor in setting the reserve percentage held against invoices, the higher the historical dilution, the lower the advance rate.
2. Fees, the factoring fees charged to the client. For example, if the fee structure for a prospect is a 3% Initial Discount along with a subsequent 10 day rate of 1%, and their DSO (Days Sales Outstanding) is 40 days, then the assumption is made that the fee for factoring an invoice will be 4%. In this way, a prospect whose DSO is greater than 40, will have a higher percentage of fees charged than a prospect whose DSO is 30 days.
For ANAPLANS to remain competitive in the marketplace, ongoing market research will determine what other Factoring Companies in their area are offering. While there may be pressures due to market conditions or client needs, the repayment of advances should be the driving factor in setting the advance rate.
8.4 Rates charged to client
ANAPLANS generally charges clients a rate of 2.75% to 5% of the outstanding invoice for the first 30 days and then an additional 1/10% to 1/7% for each additional day outstanding.
Generally, the rate charged will depend on:
Total factoring volume – the larger the volume, the lower the rate;
Average invoice size – the higher the average invoice size, the lower the rate
Client company history – the better the history, the lower the rate
Creditworthiness of customers – the better the credit risk, the lower the rate
Competitive factors, such as whether the client is also negotiating with other factors – the more competition, the lower the rate
8.5 The Documentation Stage
Once the negotiations are complete, ANAPLANS and the prospect will enter into a Purchase & Sale agreement. At this stage the prospect is converted to a client.
If a Term Sheet was used during the process, ANAPLANS would have requested a non-refundable set up or documentation fee from the Prospect. This fee is usually $750.
Once the set up fee is received, ANAPLANS will prepare the legal documents for the client’s signature. ANAPLANS requests Service Provider to order Public Records Searches after receiving the documentation fee from the prospect.
In order for the contract to be enforceable, ANAPLANS must either be present when it is signed by the client’s authorized signatory or the documents must be executed in the presence of a notary or lawyer who will stamp them or issue a letter of authenticity.
ANAPLANS will prepare the following documents:
- Purchase and Sale Agreement
- Personal or Validity Guarantee
- Notification Letter
- Subordination Agreements (if necessary)
- Directors & Officers Resolution
When the documents are ready for execution, ANAPLANS should provide the client with copies of the documents for review before the closing in order to give them time to review the documents. ANAPLANS is responsible for explaining the documentation to their clients.
Documents should not be modified in any way without ANAPLANS legal approval. Any changes must be initialed by all parties.
Each page of each legal document must be initialed.
8.6 The Client Package
ANAPLANS will submit a Client package to the credit committee containing the executed legal documents along with the Client Application Form and supporting documentation for review. This supporting documentation should include, where applicable:
- Copy of Articles of Incorporation and any amendments (legal name needed as it determines type of contract required);
- Copy of Registered Trade Name (to verify that company has a legal right to sell products and to verify that the company can sell under that name), if applicable;
- Copy of the latest annual minutes showing the current president and corporate secretary;
- Certified list of officers and directors signed by the president and secretary (to determine who has signing privileges);
- Copy of the latest Aged Accounts Receivable List;
- Customer List with complete addresses;
- List of orders on hand;
- Copy of the latest Aged Accounts Payable List, proof of payment of payroll taxes;
- Copy of the latest Financial Statements (past two years), plus a current financial statement (shows ongoing and solvent business);
- Copy of company invoices and letterhead (to determine difference in legal and operating styles);
- Brochure of company products (to show background and target audience);
- Resume of company’s principals (to determine if principals are principals of integrity and to know more about their background, which is important from a risk standpoint);
- Personal financial statements of shareholders and/or guarantors;
- Company profile (a brief history of the company’s operations); and
- Any agreements the prospect may have with their customers outside of a purchase order. These may include but are not limited to Shelf-Space, Co-op Marketing, and volume rebate agreements; and allowances or price guarantees.
- Service Provider’s Report on Prospect along with attachments
- Transaction Checklist
- Documentation Review Form
- The following executed documents:
The Purchase and Sale Agreement,
The Participation Agreement,
The Guaranty,
The Notification Letter,
Director’s & Officer’s Resolution, if Applicable, and
The Term Sheet (if used) - Public Records Search
It is imperative that all packages be as complete as possible before submission.
8.7 The Public Records Search
ANAPLANS will request for the Service Provider to search the public records for any UCC/PPSA filings, Bankruptcy filings and Litigation and Judgments. To do so, ANAPLANS must fax or email the Client Application Form and the Articles of Incorporation to the Service Provider.
The Service Provider will then forward a report to ANAPLANS along with copies of each document found in the searches. This may take up to a few days to complete. The cost to perform the searches and issue the report is usually between $100 and $400, varying due to the number of filings and areas searched.
During or immediately after the UCC/PPSA Search, ANAPLANS may file their UCC-1/PPSA to establish a first priority position, and order a search to reflect the filing.
Typically if receivables have been pledged to other secured parties, ANAPLANS will seek to have them subordinate their collateral position or payoff the previous lender in full from the proceeds of factoring the client.
ANAPLANS must forward any subordinations or terminations to the SP for filing.
ANAPLANS must have proof (in the form of a report forwarded by the Service Provider) that ANAPLANS is in a first secured position against the Accounts of each client.
8.8 Final Review
ANAPLANS will review the UCC/PPSA & Public Records search reports to confirm that the UCC/PPSA filing statement will be registered in a first secured position against the accounts of the client before funds can be advanced.
In any case where a previous filing exists against the accounts of a client, then ANAPLANS will have two options:
- Obtain Subordination Agreements from prior secured parties
See Subordination Agreements - Make sure the advance to client is directed towards a payoff to the prior secured party. In all cases, ANAPLANS will make payment directly to the Secured Party.
ANAPLANS will speak to the prior secured party to make sure that all parties agree that the amount forwarded will satisfy the client’s debt and that the prior secured party will release their security interest in the clients accounts. It is best to get the exact details in writing from the secured party.
If using this option, ANAPLANS should request their prospect write a “letter of direction” requesting the ANAPLANS to forward funds to the prior secured party.
Finally, ANAPLANS will obtain from the wife of any of the Client’s principal’s who signed a guaranty and who is not an officer or director of company a Certificate of Independent Legal Advice.
8.9 Funding
ANAPLANS will meet with the client to describe what information should be compiled to complete the Funding Process. Request that the client submit a Schedule of Accounts listing the invoices they are selling to ANAPLANS. Client should attach to this form the original and one copy of each invoice along with any supporting documentation such as purchase orders and proof of shipping.
ANAPLANS should review and complete all responsibilities on the final check list, including:
- Verify there are no contras
- Ensure all tax payments are up to date (e.g. 940 & 941’s);
- Ensure insurance is up to date;
- Send customer notification letters
- Conduct verification calls.
Once verification calls are made and the results are good, ANAPLANS can fund the eligible invoices.
8.10 Takeovers
When ANAPLANS takes over another factor’s account, they should call the existing factor and attempt to establish a rapport if at all possible to determine the reasons why the client is leaving that relationship. An existing Factor may not disclose any information to ANAPLANS that will be helpful, but it is worth a try.
The takeover process is identical to the regular funding process, except for the fact that ANAPLANS must call each customer and verify his or her balance. Notification letters should still be sent out to customers informing them to pay ANAPLANS taking over the account as opposed to the old factor. Funding should not occur until customers have received the Notification Letter.
8.11 Spot Factoring
The difference between Full and Spot factoring is the purchase of a single receivable or a group of receivables at a discount for cash. The same procedures for booking a client are essentially the same, the differences are mainly post funding.
It can be higher risk than full factoring because, if there is a default and there are no other receivables from which to recoup the loss. However, spot factoring often leads to full factoring and much of the risk is mitigated by the credit insurance.
Rates charged to client
Generally higher fees can be charged to clients who enter into a Spot Factoring relationship with ANAPLANS.
Funding
ANAPLANS should review and complete all responsibilities on the final check list, as in Full Factoring and obtain a signed Estoppel Verification Letter from the customer. See Estoppel Letter Verification
8.12 Referrals
ANAPLANS has a variety of options available to facilitate the funding of any qualified prospect they will encounter. When ANAPLANS makes contact with a prospect that has a high sales volume and therefore outside the range or pricing ANAPLANS desires to fund.
ANAPLANS will make best efforts to place the prospect with an approved commercial finance company. ANAPLANS will receive a referral fee in exchange for the referral. The prospect will enter into a factoring contract with the third party directly.
ANAPLANS Responsibilities
ANAPLANS may be asked to handle the following responsibilities:
Obtain a completed Client Application Form;
Review the information submitted in the Client Application Form and ensure completeness;
Discuss any anomalies with the prospect;
Assist in negotiating the deal.
Commissions
Third Party Lenders will pay a referral fee for any prospect it funds. The referral fee is generally 10% to 12% of its gross revenue on fees received from the client.
Asset Based Lending Services Available
Approved lenders may also fund other types of asset based lending transactions: inventory, fixed assets, purchase order financing and letters of credit.
- Inventory
SP may fund up to 75% of the appraised value, as determined by its appraiser. - Fixed Assets
SP may fund up to 75% of the appraised value, as determined by its appraiser.