Factoring Finance

1. Client issues an invoice to customer
2. The invoice is sold to ABBC
3. Client uses cash for growth, payroll, and/or other expenses
4. Invoice pays through client's lockbox
5. ABBC receives the payment
6. The client receives reserve amount less fees

Great, so you understand the product and basic process. Would you be interested in hearing how we may be able to offer you a better structure and price with a bank managed factoring facility?

It certainly can be more expensive than traditional bank financing but for the additional flexibility, frequently it is a trade-off that many companies are willing to make. Plus, it is viewed as bridge financing, a 6-36 month solution on average.

If you have an existing line of credit and you are happy with the structure and line amount, you should not look at making a change.

Much of our contact is transparent to the customer. We will need to have invoice payments sent to a Zions Bank lockbox and notification is made to the customer, usually the AP department, regarding the payment redirect. We also verify a certain percentage of outstanding invoices. This can be done via portal, email, or phone call. Every situation is different. Plus, having a Bank managed working capital facility gives a business credibility with its customers.

Our customers actually prefer using our lockbox as we handle their invoice collection paperwork and all the information is available online wherever/whenever they need to see it.

DATE FUNDED
May 2016

COMPANY DESCRIPTION
The subject is a government contracting company, specializing in cyber security solutions and training for the Department of Defense. Due to their emphasis on R&D, they had several years of losses and negative equity.

FINANCING DESCRIPTION
Facility: $3,000,000
Advance Rate: 90%
Term: No term, 60 day notice to terminate

NOTABLE ASPECTS
Most of the company's funding came from private investors, but they were in need of a working capital solution flexible enough to accommodate their growth. Zions was able to provide a substantial factoring line, encouraging the company to move all of their accounts to the Bank. In March of 2016 the company asked to terminate their relationship in order to move to another alternative lender promising to offer a $1MM LOC over and above their factoring line. Once it came time to sign with the other financing company, they asked to return because the terms of the relationship were not what they had been promised. As of May, the company renewed their relationship with the Bank.

The company will utilize the factoring facility until they qualify for a more substantial conventional line, which is estimated to be in 12-18 months.

DATE FUNDED
February 2016

REFERRAL SOURCE
Utah Business Banker identified a company that did not qualify for a traditional bank or SBA line of credit due to the amount of derogatory credit that was reported on the two active owners and a passive investor who would not guarantee the facility.

FINANCING DESCRIPTION
Facility: $500,000
Advance Rate: 80%
Term: No term, 60 day notice to terminate
Personal Guarantees: Only active owners over 20%, passive investor of 25% waived

NOTABLE ASPECTS
The company is rapidly growing and needed assistance with cash flow. The company, while profitable in 2015, lost a small amount each year in 2014 and 2013, as they started operations. They also have concentrations with a few customers who require Net 60 day terms and where payment is 90 to 120 days after the advertisement is placed. Longer terms and slow payment were impairing cash flow and hindering growth.

The new facility will accommodate these extended terms and the company will use added availability to acquire additional projects.

The company currently has their main operating accounts at another bank. With the factoring facility in place, they will move all accounts to Zions Bank.