A PUBLICATION OF THE INTERNATIONAL ASSOCIATION

FEBRUARY 2020 | VOL 22 | No. 1

M&A IN 2020

ALSO IN THIS ISSUE: THE INS AND OUTS OF M&A FOR FACTORS BACK TO THE BASICS — NOTICE OF ASSIGNMENTS

TABLE OF CONTENTS FEBRUARY 2020 | VOL 22 | No. 1

FROM IFA’S MARKETING DIRECTOR By Terri Baker

IN THE NEWS

WILL THE M&A TIDE TURN IN 2020? By Tim Stute & T.J. Humes

THE INS AND OUTS OF ACQUISITIONS By Rita E. Garwood

FACTORS BRIDGE THE GAP IN MIDDLE MARKET M&A By Sandy Garrett

SET YOUR SIGHTS ON THE 2020 IFA ANNUAL FACTORING CONFERENCE By Heather Villa COLUMNS WHAT’S NEW AT IFA

BACK TO THE BASICS — YOUR NOTICE OF ASSIGNMENT By Steven N. Kurtz, Esq.

ADVERTISER INDEX

Clarus Merchant Services...... 8 IFA...... 9, 16, 22, 34 FactorCloud...... IFC HubTran...... 7 FactorFox Software...... 5

The Commercial Factor | FEBRUARY 2020 1 FROM THE MARKETING DIRECTOR

BY TERRI BAKER

Spring is always one of the most exciting times at the IFA as we prepare for our biggest event of the year.

The April Factoring Conference is taking place in Nashville, which seems to be a top destination, as evidenced by our all-time record of registrants. The conference will provide an array of learning offerings with a diverse set of session topics designed to educate and empower attendees. Information sharing will be abundant at our networking events that are intended to promote professional growth and optimize career advancement. You can find out about all of our sessions and events at www.factoringconference.com and in Heather’s article on page 20. We are excited to announce that Tom Cotton, the U.S. Senator for Arkansas will be a guest speaker at the conference this year. He will provide an update on the regulation and oversight of the finance community and any effects they may have on the factoring industry. We invite our government officials to join us so that we can educate them and attempt to prevent possible future regulation. Maintaining these strong relationships with politicians is imperative to the continued success of the factoring industry. Members of the IFA are invited to join Senator Cotton for a private breakfast and the opportunity to speak with him personally for a small personal contribution to his campaign. Contact the IFA at confer- [email protected] if you are interested in attending this event. As most of you probably saw on the news, Nashville was hit hard by a tornado that ripped through the city in the early hours of March 3rd. According to the National Oceanic and Atmospheric Administration’s Storm Prevention Center, it was the second most deadly tornado in the state’s history. With wind speeds up to 165 miles per hour, widespread damage was apparent throughout the city. Several of the employees of the Omni Hotel, where the conference will take place, had extensive damage to their homes. Luckily they and their families were all okay. Our thoughts are with the families of the 25 people that were killed by the tornado. The Omni property was not affected, so there will not be any interference with the conference. The other issue in the news that the IFA has been watching carefully is the Coronavirus. Economies all over the world have taken a significant hit and almost every industry has been affected by the spread of the outbreak. Worldwide, large scale conferences have been canceled or postponed. With the IFA Conference still being weeks away, we do not have any plans to cancel the event, but we are closely monitoring the situation and will wait to hear the CDC’s recommendations. We are working closely with the hotel to ensure that all possible additional steps will be taken to ensure the safety and health of all of our attendees. We have purchased multiple hand sanitizers that will be at the entrance to all sessions. We have updated our training classes online and are excited to announce the addition of some new sessions. The , Underwriting and Collections Training class will be held June 27-28 in Las Vegas and will cover all of the topics necessary to successfully manage factoring portfolios. Our Niche Industry Training Class will include information on the following sectors: Energy, Medical, Cannabis and Construction. This event will take place October 19-20 and is for anyone looking to learn about factoring these specific sectors. Fraud is always an important topic in the factoring industry so we are providing the Fraud Detection & Prevention Training Class October 22-23. Learn different techniques on preventative measures to take to avoid being defrauded. For a full list of all of our 2020 events, go to at https://www.factoring.org/ ifaevents. We appreciate all of the support that everyone has given the IFA over the years. This has allowed us to continuously grow our Association while providing valuable resources and services. We hope to see you all in Nashville next month so we can continue to positively impact the factoring community.

2 The Commercial Factor | FEBRUARY 2020 NEWS

INDUSTRY NEWS THE INTERNATIONAL FACTORING ASSOCIATION IFA Launches Re-Designed E-Newsletter 6627 Bay Laurel Place, Ste C The International Factoring Association launched our re-designed e-news- Avila Beach, CA 93424 letter. With a streamlined design and simplified format, it is easier than ever MAILING: PO Box 39 for members to access the valuable information they need to improve their Avila Beach, CA 93424-0039 . 805-773-0011 The weekly IFA newsletter will continue to provide pertinent and timely industry news, employment information, association events and educa- tional announcements. EXECUTIVE DIRECTOR Bert Goldberg Artis Systems Adds 5Star to Portfolio PUBLISHED BY Artis Trade Systems added 5Star Bank to its (SCF) The International Factoring Association software platform, ArtisPay. EXECUTIVE EDITORS 5Star, a community bank in Colorado Springs, CO, contacted Artis to learn Lisa Rafter about ArtisPay features and functionality, as the bank was already familiar [email protected] with the associated benefits of SCF. Following the demo, 5Star decided 610-213-9105 to move forward with due diligence and a vendor review of Rita Garwood Artis. After qualifying as a bank vendor, Artis and SCF received BOD and [email protected] bank approval in the second half of 2019. The bank is looking to launch the 484-253-2505 product with its pilot client in March of 2020. ADVERTISING SALES HubTran Makes FreightWaves’ Top 25 List Laura Backe On November 13, at the FreightWaves LIVE conference in Chicago, HubTran [email protected] — creator of processing automation — was named to the Freight- 610-331-0522 Tech 25, the 25 “most innovative and disruptive companies across the freight industry.” Chris Abel In its article spotlighting HubTran, FreightWaves described the company as iThrive Funding, LLC, Roy, UT “at the forefront of the digital push for automating the back office.” John Cummings ACS Factors, Upland, CA Capital Now Team Continues to Pursue CAEF Certification Tania Daniel Capital Now’s team has been working hard for the last 20-plus weeks to en- ENGS Commercial Capital, Birmingham, AL sure the company’s entire core team is CAEF certified by spring. To this end, one Capital Now manager passed his exam several weeks ago. Currently, Kee Kim Capital Now has 66% of its operational and management team certified, Finance One, Inc., Los Angeles, CA which is the highest percentage in North America (and in the world). Paul Schuldiner Capital Now is extremely pleased with its recent CAEF certifications and is Rosenthal & Rosenthal, New York, NY excited as other core team members become CAEF certified in the upcom- Nel Somarriba ing weeks, which will make them the most certified team in the world. New Century Financial, The Woodlands, TX Gerry Wawzonek GCBC Celebrates 20-Year Anniversary Capital Now, Calgary, AB, Canada Gulf Coast Credit, a division of Gulf Coast Bank & Trust, celebrated Kevin Wood its 20th anniversary as an and -based lender. This Chesapeake Bank, Flow Division, Gloucester, VA year, GCBC celebrates its anniversary by looking toward the future-continu- ing its tradition of service, industry best practices and social/community responsibility.

FactorCloud’s Parent Company Named to The International Factoring Association’s (IFA) goal is to assist the factoring community by providing information, training, pur- Inc. Magazine’s Vet100 List chasing power and a resource for factors. The IFA provides a way FactorCloud’s parent company BAMFi has been named to the annual for commercial factors to get together and discuss a variety of Vet100 list — a compilation of the nation’s fastest growing veteran-owned issues and concerns about the industry. Membership is open to businesses. The ranking, created in with Inc. magazine and all and finance companies that perform financing through Syracuse University’s Institute for Veterans and Military Families (IVMF), the purchase of or other types of accounts receivable. was born out of the iconic Inc. 5000 list of the fastest-growing private The Commercial Factor is published bi-monthly by the Interna- companies based in the U.S. Both distinctions are considered hallmarks of tional Factoring Association. To subscribe, please email entrepreneurial success. [email protected]. The Commercial Factor magazine invites the submission of Flig Launches Mountainside Capital articles and news of to the factoring industry. For more Commercial finance veteran Joel Flig has launched Mountainside Capital to information on submitting articles or advertisements, email [email protected], or call 805-773-0011. provide direct funding to companies that need the right capital solutions for their businesses. The company will offer receivables financing and other The views expressed in the Commercial Factor are those of the ABL products, including term opportunities, and will participate on authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association. transactions with other lenders.

The Commercial Factor | FEBRUARY 2020 3 NEWS Douglas Ray Thomas, 49, entered into an agreement to purchase Northwoods Trucking IFA CALENDAR OF Flig, who will serve as president and CEO of in 2013, assuming control of the business but Mountainside, has been in the commercial fi- failing to compensate the sellers, according EVENTS 2020 nance business for more than 40 years. Most to documents filed in federal court. Within recently, he helped build his previous factor- months, the company had been stripped of ing company to a successful sale to a bank. its and 16 employees were out of work. April 22, 2020 Prosecutors said Thomas pocketed a “sig- Factoring Essentials Training Class Serial Fraudster Imprisoned for nificant portion” of the business’ revenue, Omni Nashville, Nashville, TN Defrauding Trucking Company spending some on furniture and a family vaca- tion, while failing to pay workers, vendors and Owners of $730,000 April 22–25 An Indiana man has been sentenced to more taxes. than four years in federal prison for a scheme 2020 Annual Factoring that led to the collapse of a Duluth trucking Commercial Finance Partners Sets Conference company and bilked its former owners out of Record with $117MM in New SBA Omni Nashville, Nashville, TN $730,000. Commercial Finance Partners has set a new June 8-9 record in 2019 by facilitating more than $117 million in new SBA loans for 2019. The Law and Business of CANADA CHAPTER Factoring Training Class EVENTS 2020 INDUSTRY TRANSACTIONS Planet Hollywood, Las Vegas, NV Austin Financial Provides $2.75MM June 11-12 March 10 ABL Facility to a Midwest-based Account Executive/Loan Officer Cybersecurity Freight Transportation Co Austin Financial Services closed a $2.75 mil- Training Class April 22 lion ABL facility with a Midwest-based freight Planet Hollywood, Las Vegas, NV Chapter Reception at the IFA transportation company that provides freight management and brokerage services of fresh July 27-28 Annual Conference produce and refrigerated goods for custom- 4:30pm–5:30pm ers nationwide. Proceeds from AFS’ revolver Credit, Underwriting & Collections Omni Nashville, Nashville, TN were used to pay off the company’s existing Training Class bank line and provide new funds for working Planet Hollywood, Las Vegas, NV May 5 capital and to support business growth. September 9-11 Factoring & Technology North Mill Provides $8MM ABL Facility for Coastal Wire Company Transportation Factoring Meeting June 9 North Mill provided an $8 million asset-based The Westin, Seattle, WA Business Transactions lending facility for Georgetown, SC-based & Factoring Coastal Wire Company. Registration Information: The funds were used to pay off the previous www.factoring.org August lender and provide additional TBA for the company. Coastal Wire Company Summer Golf Gathering was founded in 1978 and manufactures fully annealed, high-strength baling, tying and specialty wire products for the recycling and The inclusion of ESG (environmental, social September 15 galvanizing industries. and ) criteria means Legal Update that Siemens Gamesa will be able to improve Capital Now Provides $150K Credit the conditions of the factoring that it pays to CaixaBank according to its sustainability rat- October 13 Facility to Alberta Oil & Gas Tools Co ing. For Siemens Gamesa, sustainability is the Factoring Companies Offering Capital Now assisted an oil and gas tools com- backbone of its whole , which Supply Chain/PO Products pany with its concerns. Capital Now is why it wants to comply with ESG principles was able to assist in keeping the business in all its decisions, including financial opera- operating as normal. Meetings Location: tions. The company knew it needed help from Mississauga Living Arts Centre Capital Now to keep the ball rolling in a posi- Capital Now Provides $100K Scotia McLeod Room tive direction. Credit Facility to Calgary Water 4141 Living Arts Drive Management Specialist Mississauga ON L5B 4B8 CaixaBank & Siemens Gamesa Capital Now assisted a Calgary-based water Sign First Sustainable Factoring management company with its cash flow For more information, call Agreement needs. This allowed the company to stay on Oscar Rombolà at (905) 603-6284 CaixaBank has signed the first sustainable top of expenses, further their business in Alberta and take on more projects. or email factoring agreement in Spain with Siemens Gamesa. The operation includes sustainability The company came to Capital Now due to a [email protected]. criteria in the pricing policy of this short-term negative experience with another lender. Visit IFA Canada’s website at financing method, in line with both compa- www.FactoringAssociationCanada.com. nies’ environmental commitment.

4 The Commercial Factor | FEBRUARY 2020 Pinnacle Capital Finance Provides $4.5MM Line of Credit to Furniture Manufacturer Pinnacle Capital Finance announced the is- suance of a $4.5 million line of credit to a San Francisco Bay Area design, manufacturer and distributor of indoor and outdoor modern fur- niture. The company supplies furniture and lighting to , restaurant, hospitality, rental and design companies located in the United States, Canada and South America. The company enjoyed double digit growth and profits until new tariffs imposed by the U.S. on imports from Chinese vendors, along with a strategic product diversification plan FactorFox Software put a strain on their . Their existing lender was unwilling to continue their #1 Cloud Factoring Software Since 2004 relationship.

Brookridge Funding Completes $4MM in Purchase Order Funding www.factorfox.com Facilities Brookridge Funding completed $4.05 million 877-890-1897 in purchase order funding facilities for four new clients: $1.5 million for a Georgia provider of school security systems, $1.3 million for a New Jersey distributor of recreational equip- ment, $750,000 for a Kansas importer of Beautifully Designed & User Friendly private label sportswear and $500,000 for a Florida wholesaler of shopping carts. Powerful For Any Size Factoring Firm The clients were introduced to Brookridge by their factors and asset-based lenders.

Versant Funding Closes $2MM Factoring Facility The company needed cash flow to meet and solicit offers for the equity in Versant Funding recently closed a $2 million needs and internal payroll. Capital Atlantic Carbon. A credit bid from White Oak non-recourse factoring facility for an airplane Now enabled them to stay current with bills was ultimately determined to be the highest cabin technology company. or internal payroll. This client was referred to and best offer for all of Atlantic Carbon’s Versant will fund receivables in almost every Capital Now by another satisfied client. equity interests. industry. Versant’s experience in the factoring industry enables it to provide the immediate Rosenthal Provides $3MM Factoring Sallyport Provides $1.3MM AR working capital needed to help businesses grow. Facility for Cady Industries Facility to Flower Distributor Rosenthal & Rosenthal completed a $3 mil- Sallyport Commercial Finance supplied a BBVA and Nordex Sign Three Green lion non-recourse factoring deal with Cady $1.3 million accounts receivable facility to a Factoring Operations Industries, a specialty chemical manufacturer. wholesale distributor of plants and flowers. BBVA has certified as green three non- Headquartered in Georgia, Cady needed The company needed additional working recourse factoring operations from the wind additional working capital to assist with capital to fulfill large orders. It was referred turbine manufacturer Nordex. Closed in 2019 paying out the company’s minority investors. to Sallyport by a broker who has worked with for approximately €265 million ($287.78 When the company’s lender, an institutional the company in the past and felt confident million), the operations will deduct invoices bank, was unable to offer more flexibility and that Sallyport could provide a structured solu- from wind turbine supplies that the German capacity on its existing line, Cady turned to tion to support its growth. company will provide to the builder of various Rosenthal for a new financing solution. wind farms. The factoring facility allowed the client to pay North Mill Capital Closes $3MM Revolver for Seating Concepts Through factoring, the bank directly finances out the minority investors and provided more North Mill Capital funded a $3 million revolv- the supplier, helping it to enhance its com- flexibility to support future sales growth. ing line of credit and a $500,000 equipment mercial offer. Thus, the bank facilitates the term loan facility to Seating Concepts. The deferment of payment until the wind farms SSG Advises Atlantic Carbon Group proceeds were used to pay off the existing are operational, which is when the builder Sale to White Oak Affiliate lender and provide additional working capital. disburses all the funds. In this case, a total of SSG Capital Advisors acted as investment Founded in 1980, Seating Concepts, is a 105 turbines will be installed, with a capacity banker to Atlantic Carbon Group in the sale manufacturer of furniture and decor for the to generate 379.5 MW of energy. of its equity interests to ACG Holdco, an af- restaurant and food service industry. filiate of White Oak Global Advisors. The sale Capital Now Provides $50K Credit was effectuated through an Administration TAB Bank Provides $2.5MM Facility to Safety Services Co proceeding in the UK and an ancillary Chapter Revolver to Technology Company Capital Now provided a $50K credit facility 15 proceeding in the U.S. Court TAB Bank has provided a $2.5 million revolv- to a British Columbia-based safety services for the District of Delaware. ing credit facility for a technology company company. Capital Now assisted due to cash SSG was retained by the UK administrators to based in California. The new facility is extend- flow concerns. conduct a comprehensive marketing process

The Commercial Factor | FEBRUARY 2020 5 NEWS Stenn Closes AR Financing for Austin Financial Provides $6.3MM Photography Accessories Importer Facility to Meal Production Stenn International has closed a six-figure Company trade receivables finance program for a trad- ed through a multi-year agreement and will Austin Financial Services closed a $6.3 million ing company based in New York that sources provide for the company’s ongoing working AR and inventory revolver with M&E and photographic paper from Canada. This new capital needs. The company services the wire- capex term loans for a company that provides financing program is being used to free up less technology needs of its clients through meal production & delivery service to hos- working capital to support sales expansion. wireless engineers and industry experts. pitals, skilled nursing homes, long-term care The importer’s Canadian supplier engaged facilities and catering companies throughout Versant Funds $3MM Factoring with Stenn to receive payment at the time the country. Facility to Uniform Manufacturer of invoicing and shipping of goods, while Proceeds from the revolver were used to pay Versant Funding provided a $3 million the importer benefited from open account off the company’s existing bank line, fund non-resource factoring facility to a growing payment terms that allowed for payment ongoing working capital needs and provide uniform manufacturer based in the Northeast. at a later date. In this way, Stenn’s program new capital to support the company’s expan- “Versant’s offering was an excellent match for provided liquidity to both parties in the trad- sion strategy. this relatively new, but expanding business,” ing relationship. said Chris Lehnes, business development of- Crestmark Tops $42.3MM in Funding ficer for Versant Funding and originator of this Huntington Provides $13.4MM to 112 Businesses in H2/Jan financing opportunity. “We do not set a cap on Facility to Dutchland Plastics Crestmark secured a total of $12 million in our factoring facilities. So provided our client Huntington Business Credit closed a new ABL financial solutions for nine new clients; continues selling to strong customers, as the $13.4 million credit facility with Dutchland Crestmark Equipment Finance provided business grows, so does its access to cash.” Plastics. $12.156 million in 12 new lease transactions; Proceeds of the facility were used to refi- Crestmark Vendor Finance provided $7.47 nance existing debt and provide ongoing million in 87 new lease transactions; the working capital growth financing. Joint Ventures Division provided $994,451 in financing for one client and the Government NORTHEAST CHAPTER Ootsburg, WI-based Dutchland Plastics a plas- Guaranteed Lending Division provided $9.7 EVENTS 2020 tic rotational molding manufacturer of large million in financing for seven new clients in consumer and industrial products. the second half of January.

April 22 TradeCap Partners Closes $500K Brookridge Closes $32MM PO Chapter Reception at the IFA PO Facility for Footwear Apparel Funding for Equipment Distributor Annual Conference Importer Brookridge Funding completed a $32 million TradeCap Partners closed a $500,000 purchase order funding for an importer and 4:30pm–5:30pm purchase order facility for a New York-based distributor of recreational equipment. The Omni Nashville, Nashville, TN clothing and footwear apparel importer that client received very large seasonal purchase sells through retail channels in the U.S. orders from a major retailer, which could not be financed within its existing asset-based For more information, call Harvey TradeCap advised the client of the pitfalls lending facility. Gross at (732) 672-8410 or e-mail associated with providing cash deposits to [email protected] overseas suppliers and structured a letter of Brookridge was able to establish an inter- credit to ensure quality goods were sourced with the asset-based lender and pay or visit www.ifanortheast.org in a timely manner to meet delivery dates of for the merchandise as it shipped from Asia the client’s customer. The transaction was enabling the client to accept all the orders underwritten quickly in order to maintain the and realize the profits. time sensitive shipping schedule of the cus- MIDWEST CHAPTER tomer. TradeCap closed the PO facility within Alleon Provides $750K AR Facility to a week and issued an irrevocable letter of EVENTS 2020 Pharmacy credit with terms acceptable to the overseas Alleon Healthcare Capital closed a $750,000 factory. The senior lender’s partnership with medical accounts receivable financing facility TradeCap allowed it to provide a solution and with a pharmacy in Pennsylvania. April 22 further strengthen their client relationship. Chapter Reception at the IFA The client is a 20-year old multi-state SG Credit Provides $2MM to licensed, independently owned pharmacy Annual Conference provider. 3:30pm–4:30pm Enterprise SaaS Company SG Credit Partners closed a $2 million credit It approached Alleon seeking financing for Omni Nashville, Nashville, TN facility for Enterprise SaaS. The Enterprise its health insurance accounts receivable to SaaS platform enables companies to prepare restructure its debt and enable its growth For information on upcoming and oversee RFPs and other . The three to four-week delay from events, contact: responses with speed, accuracy and compli- date of service to receiving payment was ance. The company’s recurring revenue is hampering the company’s ability to onboard Robert Meyers $4.5 million. new patients. The company’s average patient IFA Midwest Chapter President requires seven or more medications so the SG Credit provided the company with a bifur- upfront cost to the company per new patient Republic Business Credit, LLC cated loan structure consisting of a $1 million is high considering the payment delay. [email protected] interest-only loan to refinance the existing debt and a $1 million term loan to finance the company’s growth initiatives. Iron Horse Provides $12MM Facility to Plant Nursery & Distributor Iron Horse Credit has completed a $12 mil- lion stand-alone inventory facility to a plant

6 The Commercial Factor | FEBRUARY 2020

NEWS necessary to fulfill its growing contracts with new asset-based lending relationships in the FEMA. Upper Midwest. KTC assessed the client’s abilities and ulti- Ortel’s experience in business development, nursery and distributor that primarily sells to mately proposed and quickly underwrote the relationship management and field examina- home and hardware stores, big box retailers finance relationship for the client to fulfill an tions provides a solid platform for delivering and grocery stores. initial $3.5 million contract. solutions that meet clients’ and financial The additional capital will enable the client to sponsors’ goals. She developed this expertise purchase raw material, pay down its vendors AmeriSource Closes $2.5MM Facility working with both regulated and non-regulat- and take on new orders to achieve its pro- for Kitchen Counter Manufacturer ed institutions. Ortel joined Gibraltar follow- jected growth. Amerisource Business Capital closed a $2.5 ing 17 years as a business development officer million credit facility for a kitchen counter at Wells Fargo Capital Finance and seven Tradewind Delivers $1MM Facility to manufacturer based in New York. The pro- years as a and portfolio manager for Guaranty Business Credit. Packaging Manufacturer ceeds are being used for working capital. Tradewind Finance has completed a $1 million “We are pleased to welcome this new client. CBC Business Credit Names Scoggin non-recourse factoring facility for a packaging Following a change of ownership, the com- VP of Marketing & Business manufacturer in the UAE that primarily sells pany’s bank was unable to renew its revolver. to domestic big names. Amerisource was approached and was able Development to approve and close a revolving facility in California BanCorp announced that Alexandra The company, which produces cardboard Scoggin has joined the CBC Business Credit boxes and packing tape, is allocating the under two weeks. We have enjoyed working with the new owners and look forward to our team as vice president of Marketing and funding to purchase raw materials for new Business Development. CBC Business Credit orders. continued partnership,” said Andy Allaire, regional market manager for Amerisource. offers asset-based financing to a broad array of businesses. Scoggin will be based in South- King Trade Provides $2.4MM Facility ern California. for Government Contractor PERSONNEL NEWS Scoggin previously served as vice president King Trade Capital completed a $2.4 mil- of Business Development at Goodman Capital lion purchase-order finance facility for a Gibraltar Names Oertel SVP/BDO of Finance. Her role entailed negotiating favor- Florida-based, minority-owned government Upper Midwest Region able financing proposals for new business contractor. Gibraltar welcomed Robin Oertel to the prospects, offering lending options to achieve A financial consultant, who had previously GBC family as a senior vice president and profitability objectives for the company and utilized KTC to finance another government business development officer, based out of maintaining client relations. She has also contractor, contacted King Trade Capital Minneapolis, MN. Ortel will use her 20-plus worked at Bibby Financial, Continental Busi- to help its current client acquire the capital years of experience to originate and execute ness Credit and Merchant Factors.

8 The Commercial Factor | FEBRUARY 2020 Cohn & Dussi Add National Director Bolanos joins Triumph after nearly four years companies throughout North America, hired of Sales and Marketing in a similar role at eCapital, a freight factoring Francois van Reede as a business develop- Cohn & Dussi, a full-service law firm based in company based in Southern California. ment officer. Boston, announced the addition of Robert Han- Bolanos will lead Triumph’s Client Experience Based in Arizona, he will be responsible for na as director of National Sales and Marketing. team with a focus on employee engagement sourcing and developing client and referral “Bob has been influential in the ’ and training. In this newly created role, he will relationships throughout the U.S. rights and commercial collection industry,” oversee the company’s customer service and Over the past 25 years, Francois has worked said Lewis Cohn, managing partner of Cohn retention goals, using a data-driven approach with some of the largest banking and financ- & Dussi. “He is well respected by financial to track and meet established benchmarks. ing entities in South Africa, Canada, and companies throughout the country. We are the United States, including Barclays Bank, pleased to have him as a valuable member of Utica Equipment Finance Hires Nedbank, ABSA, GE Capital, ABN-AMRO Bank our firm.” van Reede as BDO and Caterpillar Financial Services. He joins Utica Equipment Finance, a provider of Utica from Sterling National Bank. • Axiom Bank Appoints Scheff VP, equipment-based term loans and leases to Commercial Relationship Manager Axiom Bank, a Maitland-based community bank, named Bryan Scheff VP, commercial relationship manager. In this role, Scheff will develop relationships with Axiom’s commer- cial partners in Central Florida. think you know your stuff?

Bahr Joins Triumph as EVP of Sales Triumph Business Capital has hired Erik T. Prove it! Bahr as executive vice president of sales. He will report to Geoff Brenner, chief executive Certified ACCount exeCutive in fACtoring officer. Bahr joins Triumph after serving as Texas regional president of Compass Real Estate, an agent-centric real estate technol- You are eligible to sit for the Certified Account ogy company. Prior to Compass, he spent exam if you have been a decade respectively at Yahoo (broadcast. executive in Factoring com) and Facebook, leading and growing involved in Factoring for at least two years and business-to-business and business-to-con- you are or have been in an sumer sales for each. Account Executive role, or you Crestmark Launches New have managed such a Financing Groups, Taps Tomasello & Heath to Lead position. Crestmark has launched a Business Credit group to focus on asset-based lines of credit tHe ProCeSS iS eASY... and a Commercial Capital group to focus on capital needs primarily secured by accounts Any qualified candidate can sign-up, there is no need receivable. for employer sponsorship. Qualified candidates can Steven Tomasello leads the Business Credit group, and Heath Holdbrooks leads the Com- schedule the exam at a supervised testing center mercial Capital group. Tomasello has led in a nearby city and will take a 100 item, multiple Crestmark’s East division for more than 10 years, and Holdbrooks has led Crestmark’s choice exam. Transportation division for over five years. Under their leadership, both divisions have ProudLY diSPLAY tHe CAeF deSignAtion experienced significant growth. Do The exam was not designed to Amerisource Hires Forbes to Aid you ABL Expansion be easy; many candidates or your Amerisource Business Capital has hired indus- report that taking the exam employees try veteran Doug Forbes. took every bit of the two possess the Forbes will serve as a regional market man- ager based in Houston and will be responsible hours allotted and not everyone who takes the knowledge for new business development throughout exam will achieve this prestigious credential. base to become Texas and Louisiana. He joins Amerisource Certified? with more than 30 years sales and credit Candidates who pass the exam can proudly display experience in asset-based lending. His previ- ous work experience includes marketing for their CAEF designation by using the Join The Growing MidCap Business Credit and Frost Capital. CAEF logo and C.A.E.F. initials to Ranks of CAEF’s Bolanos Joins Triumph show the world they are proficient and Sign-up Today! Business Capital in the field of Factoring. Triumph Business Capital hired Moises Bolanos visit www.factoring.org for more as senior vice president of Client Experience. information or call 805-773-0011

The Commercial Factor | FEBRUARY 2020 9 M&A IN 2020 FEBRUARY 2020

Will the M&A Tide Turn in 2020?

The M&A market entered full recovery in mid-2012, but where The recession M&A market, roughly volume to typical historical levels. from mid-2008 through Q3/10, But deal multiples had not yet does it stand today? Tim Stute was a period when transaction returned to historically high levels, and T.J. Humes examine recent multiples were at a range from a and we questioned whether they trends in the market, shifts in the discount, to a modest premium, to ever fully would. tangible book value (equity) and acquirer landscape and explore The previous M&A peak market for earnings multiples were irrelevant. commercial finance companies was, the question, is now the right Over the last decade, M&A market perhaps unsurprisingly, from 2004 time to sell? conditions have steadily improved. through early 2008, ending with Late 2010 through early 2012 the advent of the Great Recession. BY TIM STUTE & T.J. HUMES presented a slow M&A market but In more recent years, we’ve seen premiums returned, expressed both continued improvement in the M&A as percentage of tangible book and market. Having already used “fully When a commercial finance earning assets. recovered,” we now needed a new company invites us to come in to We characterize the period, starting label for the latest era. discuss “strategic alternatives” in mid-2012, as the fully recovered (cough, cough… a sale), part of the Reluctant to call another peak, we M&A market, which included ample use “seller-driven M&A market” to discussion touches on historical deal activity. Banks and business M&A activity and valuation. As we define the period of time since 2016, development companies (BDCs) which has been characterized by a were going through this slide in a were the active buyers. While we recent pitch, it occurred to us that robust buyer universe with credit labeled this period fully recovered, funds and strategic buyers joining 2020 will mark a decade since the it was due to the recovery of deal end of the recession M&A market. banks and BDCs. Multiples have

10 The Commercial Factor | FEBRUARY 2020 returned to pre-recession levels. So WHERE DO WE GO FROM HERE? not fully known but perhaps more where do we go from here? Will the To the earlier question, are we exaggerated than in past election coming years warrant the label “new headed to a “new peak” or — to take years. Reading the tea leaves from peak” or has the steadily improving a draconian outlook — a return to recent M&A deals, it feels that we M&A market of the last decade the M&A market of a decade ago? may drift toward the fully recovered come to an end? We do not see evidence suggesting M&A market in the coming months a rapid drop from peak M&A market and years, but that could change on EXAMINING VALUATION to the recession M&A that unfurled November 3. METRICS in 2008, nor do we think we are Having more or less returned to the It’s worth pausing to revisit the headed toward a new peak. pre-recession peak M&A market, valuation metrics we typically use in In recent commercial finance M&A a natural question is whether now an M&A transaction: price to earn- deals, we continued to see interest is the time to sell. Considering only ings, price to tangible book (equity) from a variety of potential acquirers. the M&A market, the answer is and premium to earning assets. Over the last two years, banks (Gulf quite possibly yes. However, the Price refers to equity value, and we Coast Bank & Trust, Triumph and decision on when to sell is more typically include any junior capital TAB Bank), BDCs (Hercules Capital complex. A company’s stage of (preferred equity, subordinate / and Great Elm Capital), private credit growth, management’s commit- mezzanine debt) as equity for this firms (White Oak Global Advisors) ment timeline and outside investor metric. Earnings are after tax, and and strategic buyers (North Mill demand tend to drive sale decisions earnings on pass-through entities Capital, Vero Business Capital and more than market timing. Further, are tax adjusted. For companies with Global Merchant Fund) have made a depressed M&A market typically subordinated or mezzanine debt, acquisitions. Recently completed presents the most opportunities for the associated interest expense deals are in the aforementioned both organic and inorganic growth is added back into earnings to be ranges, and initial indications for well-capitalized commercial consistent with the equity treat- on active deals suggest that will finance companies. This could lead ment. The premium percentage is continue for the near future. to a substantially larger company the dollar amount by which price down the road, even if it’s sold exceeds tangible equity divided However, the acquirer landscape before the next peak. has experienced some shifts. While by earning assets. Earning assets In summary, if you have contem- are net funds employed (accounts the trend of multiple bidders has continued, we have seen higher plated pursuing a sale in the next receivable minus client reserve) in three to five years and have limited the case of a factor. bidder drop-out, and the number of buyers knocking on our door to find ability to extend beyond, it is In the current M&A market, as with a platform seems to have declined probably worth having a discussion the peak M&A market, we are seeing slightly. about pursuing a sale on an acceler- price to earnings multiples from low ated timeline. If your sale timeline is double digit to high teens after tax, There are several potential reasons longer, now is the time to shore up price to tangible book from 150% for this. The wealth of M&A activity capital for future growth, whether it to 300% and premiums to net over the last few years could mean be organic or through acquisition. • funds employed from 15% to 40%+. buyer appetite has been satisfied. Before estimating your company’s Additionally, since many believe a value based on the most advanta- turn in the credit cycle is inevitable geous metric, it’s worth noting that (and closer everyday), would-be all three must be considered and buyers can endure the FOMO (fear Tim Stute is a balanced. Further, relatively highly of missing out) on a good acquisition rather than the stigma of making a Managing Director profitable companies (as factors and Head of Specialty tend to be relative to asset-based bad one before a downturn. This is particularly true for private equity Finance and lenders and equipment finance T.J. Humes is a companies) have a tendency to buyers, which have not been active Director of Specialty trade at the high end of the range for recently and have generally only Finance in the price to tangible book and premium pursued bolt-on acquisitions. investment banking to net funds employed but at the Let’s not forget about the election, group at Hovde Group. lower end of the range for price to which will obviously result in a earnings. binary outcome for which the bene- fits/consequences either way are

The Commercial Factor | FEBRUARY 2020 11 M&A IN 2020 FEBRUARY 2020

The Ins and Outs of Acquisitions

M&A has always been a large part of the financial industry. But where does the process begin? Robert Carothers, Jr. shares the key information factors need to know when acquiring another company — or a bank — or when they want to sell to the highest bidder.

BY RITA E. GARWOOD

We see financial institution regulation and completely fixed. It’s just the cleaner in the news frequently these days mergers and acquisitions, sat down you are, the less issues there are (see page 10 for a rundown of the with Commercial Factor to shed light for a buyer to be concerned about, most recent transactions in the on the M&A process. the more valuable your company is factoring industry). But where does going to be.” the average factoring company PREPARING TO BE ACQUIRED Once your house is in order, interested in M&A begin? Robert The first step in preparing for Carothers says it’s vital to get a L. Carothers, Jr., partner at Jones an acquisition is to address any handle on any potential transac- Walker, who focuses his practice on outstanding company issues. tion costs that may be borne by the “When you sell your company, you buyer, such as termination of any want it to be as clean as possible,” vendor contracts and triggering any Carothers says. “If you have regula- change in control or other types of Robert L. Carothers Jr. Partner tory issues, litigation issues or asset severance . These costs Jones Walker LLP quality problems, do your best to will be factored into how much an get them addressed. You don’t acquirer is willing to pay for your necessarily have to get them all company.

12 The Commercial Factor | FEBRUARY 2020 Finally, consider engaging an invest- have the capital to buy them or a the bank will be extremely impor- ment banker who can help create credible plan to raise it, they might tant. Carothers says regulators will marketing material, create a list of not be interested in talking with also look closely at the background potential buyers and ensure you’re you,” Carothers explains. of the acquiror and its principals to offered the best price possible. “If ensure they are comfortable with you’re going to sell your company, UPSIDES AND DOWNSIDES them. “They’re going to ask for and hiring an investment banker can be review a lot of information as part of The bright side of acquisitions is a wise decision because they have their applications process. Be sure their ability to allow a factoring extensive experience they can bring to have some preliminary conversa- company to build economies of to the table,” Carothers says. tions with the bank’s regulator.” scale faster than growing organi- cally. “They allow you to bring in key PREPARING TO ACQUIRE producers that you otherwise may SELLING TO A BANK What if you’re on the other side not have access to, which enables Before deciding to sell to a bank, of the table and want to acquire you to create new business relation- factors must ask if the timing is right another company? Carothers says ships,” Carothers says. “It can also to put the company up for sale. the first step is identifying a list of enable you to get into new products “Once again, that comes back to potential target companies. “These and business lines and diversify and talking with an investment banking companies must be a good fit from a grow at a faster pace and enhance firm about what the future holds cultural standpoint,” he says. “Look profitability and franchise value in in terms of pricing for factoring at the manner in which they operate the process.” companies and looking at pricing their business and the kind of prod- The disadvantages of acquisitions trends to see if you are hitting the ucts that they sell and synergies that involve due diligence, which is top of the market, or the bottom, or can be created.” extremely important. “If you’re a somewhere in the middle in terms of Going to trade association events, buyer, you must understand exactly timing.” like the IFA’s annual conference, is a the assets and liabilities that you are Second, it’s important to determine good way to get the process started acquiring and assuming as part of if shareholders of your company by getting to know the management an acquisition,” Carothers says. “If want stock, cash or a combina- teams of other companies in the something major is missed during tion of both. Are they comfortable industry. “Building a relationship and the due diligence process, you taking stock of a non-publicly traded trust goes a long way to getting a bought it, and it is your liability.” company? “We have many clients deal put together,” Carothers says. who aren’t interested in anything “A lot of that can be done at trade FACTORS ACQUIRING A BANK other than either cash or public association events where you can company stock because it’s liquid,” Factors looking to enter the banking go to dinner and talk about what’s Carothers says. game must be aware of rules going on with your companies. It’s governing who can acquire a bank Finally, be sure to determine easy to plant that seed and say, ‘If as well as the rigorous applications the future roles of the factoring you ever decide you want to sell process involved. Ultimately, the company’s management team in your company let’s talk.’” bank’s regulator needs to approve the resulting entity. Do they want Engaging an investment banker is the acquisition. “Banking is a highly employment contracts? “If a bank also a great move for factors looking regulated environment, more so wants to get into factoring, it’s prob- to acquire since they can assist with than what a factoring company is ably an area where they don’t have creating a target list, help strategize used to,” Carothers says. “Banks face expertise, so they’re probably going on the best fit and assist with pricing in-depth regulatory exams every to be looking to the factor’s manage- the deal appropriately. “Investment 12 to 18 months, have limits on the ment team on a go-forward basis to bankers generally have a lot of inside types of non-banking activities they run the factoring division. They’re knowledge about who’s looking to can engage in and a heightened probably going to want those key sell,” Carothers says. focus on regulatory capital, asset executives around and may want Last, but not least, be certain that quality, liquidity, interest rate risk them to sign employment agree- you have enough capital in place or a and Bank Secrecy Act/anti - ments as part of the deal to ensure plan for raising the necessary capital laundering, to name a few.” that they’re going to be around to help run the business.” • to close the sale. “When you start Getting the bank regulators talking to sellers, they look at your comfortable with the business plan Rita E. Garwood is editor in chief of balance sheet, and if you don’t really of how the factor would integrate Commercial Factor.

The Commercial Factor | FEBRUARY 2020 13 M&A IN 2020 FEBRUARY 2020

Factors Bridge the Gap in Middle Market M&A

Middle market M&A can be factoring companies to become a buyer frequently occurs. As with all complex, but factoring can cornerstone of the liquidity neces- M&A negotiations, sell side invest- sary for closing the financing gap ment bankers’ expertise is critical simplify several aspects of the between buyers and sellers. in closing this delta between seller/ process for buyers and sellers. buyer expectations. Sandy Garrett explores several DETERMINING PRICE Once a nominal price has been agreed upon, working capital benefits that factoring can The pricing process in M&A transac- tions begins by multiplying EBITDA requirements must be negotiated. deliver, including help with (earnings before interest, taxes, The net price is typically reduced transparency, avoiding surprises, depreciation and amortization) by by outstanding debt and increased an agreed upon multiple appropriate by cash. As such, enterprise value adding liquidity and improving for the seller’s industry. The defini- is typically calculated on a “cash buyer ROI. tion of EBITDA is not hard and fast, free, debt free” basis. Inadequate however. Adjustments to EBITDA, use of leverage, overpayment for BY SANDY GARRETT such as adding back non-recurring debt, unbalanced current ratios expenses, redundant expenses or and low debt service coverage are among many balance sheet items The M&A market has been robust non-business-related expenses, that can reduce the selling price. for over a decade and remains are subject to substantial nego- Buyers try to build in protections, strong. However, with concerns tiation. Once EBITDA issues are such as account receivable reserves, about the economy, bank leverage resolved, a gap between sale price indemnification provisions and other for buyouts is tightening. This expectations (multiple) by seller holdbacks, all subject to further provides a great opportunity for and purchase price expectations by negotiations.

14 The Commercial Factor | FEBRUARY 2020 In middle market M&A transac- or low inflection point, providing for debt. As such, factoring provides tions, typically $20 million to $200 an excess payment to or by the seller. ongoing liquidity without stretching million in size, buyers most often Growth companies have an ever- bank leverage that might better require a minimum normalized level increasing working capital growth be used for equipment financing. of working capital on the balance requirement, and working capital Factoring provides further flexibility sheet at the time of close. This might best be averaged over the last in uncertain economic environ- supports both running the company six or three months rather than 12. ments, reducing risk perceived by in an orderly fashion post-close and banks, thus reducing the risk of avoids short-term liquidity issues. THE ROLE OF FACTORING disruption to bank term loans in the The working capital provision, next event of declining working capital Factoring can play an important role to EBITDA adjustments, is the most coverage ratios or, worse yet, in the that can benefit both buyers and subject to abuse and negotiation. event of covenant violations. sellers. For private equity inves- These are quite complex when tors, factoring is complementary Investment bankers can advise addressing issues such as deferred to bank-leveraged financing. It is factoring to clean-up unusual revenue for software companies, relatively risk-free when undertaken receivables on the balance sheet, deferred taxes, loans due to insiders, on a non-recourse basis. Factoring particularly those related to large prepaid expenses and accrued reduces equity invested to purchase transactions and/or extended interest. Once again, investment the company and increases buyer payment terms to better , bankers negotiate with buyers about ROI, allowing for a higher purchase thereby reducing questions related which current assets and liabilities to price. The factoring advantage is to normalized working capital. include and over what period. particularly interesting for high-yield Before selling, a company can factor Simplistically, working capital orientated private equity companies. receivables and redeem debt and is determined by subtracting a other liabilities that might otherwise The know-how of a factoring business’ current liabilities from its be subtracted from the sales price. company can be used by an invest- current assets (less cash). However, However, due to buyer averaging of ment banker to examine and analyze this may vary substantially at any working capital, this process should the receivables portfolio of its client, given point in time. Sellers can start early in the decision-making providing both buyers and sellers press customers for payments and/ process of selling a company. reduced risk of surprise in working or use factors, thereby reducing capital assessments. Hidden risks The sale and purchase of companies receivables and stretch payments in receivables management can be is a highly complex transaction to vendors and increasing payables. revealed to find the true value of the frequently taking a year or more By reducing production, the seller accounts receivable portfolio. The from inception to close. Judicious might reduce inventory. These, result is more transparency and an use of factoring is beneficial to both conveniently, contract working improved knowledge of the target parties in several ways. It helps both capital, thereby potentially company’s fair value. buyers and sellers with transpar- increasing net purchase price. As ency, helps both parties avoid Especially for turnaround finance, receivables, payables and inventory surprises, adds liquidity, improves factoring provides leverage to revert to normal levels, this would buyer ROI and helps investment buyers not otherwise available from affect a company’s future cash flows bankers structure the gap between banks. Factoring also holds the negatively. To get around these perceived value by seller and buyer, potential to reduce risk and benefit issues, buyers frequently negotiate particularly regarding normalized transactions heavy in foreign receiv- working capital hurdles with invest- working capital. • ment bankers. ables due to the greater domestic focus of most middle market Working capital hurdles may get oriented PE firms. around some manipulation by averaging working capital over the Factoring optimizes receivables Sandy Garrett is latest 12 months. But adjustments management and helps to stabilize Managing Director may have to be made based on the cash flow. This is especially benefi- of Capital Formation cial during the sometimes-turbulent for DBD Partners, an type of company, such as seasonal or independent Investment Bank transition period immediately growth companies, which frequently focused on providing strategic require adjustment. Even though a following new acquisitions. The advice in mergers and acquisitions, 12-month working capital average funding by a factoring company is financial restructuring, capital might adjust for annual seasonality, based on the purchase of the client’s formation, and to when a transaction closes, working receivables, grows in parallel with the middle market. capital may be at an unusually high turnover and does not count as

The Commercial Factor | FEBRUARY 2020 15 WHAT’S NEW AT IFA FEBRUARY 2020

Building and Maintaining Strong Relationships BY DEBRA ZUKONIK

When the AFA was formed over This article will bring you up to date in mitigating some of the damage 10 years ago, we knew we needed on a few important issues on which to factors. This has been a very a lobbyist to represent us in the AFA has been advocating on important campaign, as other states Washington. Each time any of our your behalf with key legislators and are considering similar legislation. board members has the honor of regulators. joining Palmer Hamilton in meetings CFPB UPDATE on the Hill or reviewing with him the CALIFORNIA SB-1235 The AFA has spent over three years recent progress on a specific issue, During the past two years, the AFA developing a very strong working we are thankful that we were so has worked diligently to address relationship with the Consumer fortunate to hire Palmer from Jones California SB-1235, which mandates Financial Protection Bureau (CFPB), Walker. He was the absolute best onerous disclosure requirements which is implementing Section 1271 choice for the factoring industry for credit extensions to small of Dodd-Frank, which would require because of his ability to build strong businesses. While factors do not a great deal of record keeping by relationships with key Members of extend credit, the California legis- those businesses that are deemed the House Financial Services and lature included factors as covered to be covered. Thanks to the efforts the Senate Banking Committees. He parties. While factors will take on of the AFA, the CFPB is currently works well with Members on both some additional burden from this considering whether factors will be sides of the political aisle. regulation, the AFA was successful covered by those reporting require- ments. We are hopeful factors may not be deemed to be covered.

BREAKFAST WITH SENATOR TOM COTTON We’re excited that Senator Tom Cotton will be with us in Nashville for the 26th Annual Factoring Conference. He has scheduled a fundraising breakfast for the morning of Friday, April 24, and he will speak at the IFA morning session following the breakfast. He will discuss the Congressional environment for the financial services industry and the small business community. All AFA and IFA members are welcome to attend the breakfast for a $1,000 contribu- tion, which goes directly to Senator Cotton’s campaign. We encourage you to contribute as Senator Cotton is an extremely forceful and effective advocate for free enterprise. Thanks to his understanding of the factoring business, he has been supportive of our industry and is one of factoring’s champions on the Hill.

16 The Commercial Factor | FEBRUARY 2020 THE AFA NEEDS YOU We also need your time and involve- The goal of the AFA is to increase ment. Meeting with Members of membership and financial support To continue to meet the needs of from every IFA member. We urge Congress of your State, attending our membership, it’s important every IFA member to contribute to that every active member of the the annual breakfast with a Member the AFA as we are in the midst of IFA, contribute generously to the of Congress and donating directly our annual membership fund drive. AFA. This burden cannot be shoul- to the candidates who are friends of Currently, we have Bronze Members dered by only a few in our industry. our industry, and encouraging other who have contributed as little as $500, factors to get involved and donate up to Diamond Members who have Because of the number of consoli- contributed in excess of $10,000. dations in our industry over the are additional ways you can help. The AFA has achieved many of its This is a very inexpensive insurance past year, donations have declined policy to help protect our industry from goals over the last 10 years. Please slightly and we need your help. To needless regulation which will be both continue having advocates working help us continue advocating for the costly and prohibitive. Please consider for us on the Hill, it’s critical that factoring industry. supporting the American Factoring everyone digs deep and supports Association. • the AFA.

2020 Members As of February 27, 2020

Diamond Member ($10,000+) FirstLine Funding Group New Century Financial Accord Financial, Inc. Gateway Commercial Finance Orange Commercial Credit Apex Capital Corp Goodman Capital Finance, Prestige Capital Finance, LLC Crestmark Bank a division of Independent Bank Primary Funding Corporation Great Plains Transportation Services, Inc. Interstate Billing Service The Hamilton Group Gulf Coast Business Credit Lenders Funding, LLC Ullman & Ullman, P.A. International Factoring Association Match Factors, Inc. Viva Capital Funding J D Factors Mazon Associates, Inc. Bronze ($500—$1,000) MP Star Financial, Inc. Prime Capital Group, Inc. ACS Factors Sallyport Commercial Finance, LLC Prosperity Funding, Inc. Business to Business Capital Corp. TBS Factoring Service, LLC Rioux Capital Camel Financial, Inc. Triumph Business Capital SevenOaks Capital Associates, LLC Chesapeake Bank Platinum ($5,000—$10,000) Sky Business Credit, LLC Concept Financial Group Accutrac Capital Solutions Inc. Southwest Commercial Capital, Inc. David B. Tatge, PLLC CapFlow Funding Group Transport Factoring, Inc. Entrepreneur Growth Capital eCapital LLC Silver ($1,000—$2,500) Exchange Capital Corporation FSW Funding Advantage Business Capital Finance One, Inc. LSQ Funding Group AGR Financial, LLC Firmco Business Funding Inc. Millennium Funding Amerisource Funding, Inc. Grace Capital Resources, LLC Prime Capital Group AmeriTrust Capital Corp. Greenback Capital PRN Funding Brookridge Funding Integrated Logistics & Associates Republic Business Credit, LLC Business Finance Corporation Jason Medley, Esq. Southstar Capital Cash Flow Resources, LLC MarcFunding, LLC Sunbelt Finance Commercial Business Funding Corp Paragon Financial Group Truckstop Factoring Commercial Finance Consultants S3 Capital, LLC Gold ($2,500—$5,000) David Jencks — Jencks Law, P.C. The Interface Financial Group American Funding Solutions LLC Factor King, LLC Other (Under $500) AmeriFactors Financial Group, LLC J.O.B.E. Services, Inc. Kevin Wood — Managing Director, AR Funding, Inc. K.W. Receivables Chesapeake Bank Assist Financial Services, Inc. LDI Growth Partners, LLC Stonebridge Financial Services, Inc. Bay View Funding Levinson, Arshonsky & Kurtz, LLP TradeGate Finance, Inc. Commercial Finance Group QC Capital Solutions Evergreen Working Capital Nationwide Capital Funding, Inc.

The Commercial Factor | FEBRUARY 2020 17 WHAT’S NEW AT IFA FEBRUARY 2020

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.

ASSOCIATIONS CERTIFIED MAIL CONSULTING RMail FactorHelp The following trade associations offer member Go Paperless. Switch to RMail to send your FactorHelp has come to be regarded as the pricing for events attended by IFA members: important notices. RMail services allow factors factoring industry’s premier resource provider. Beijing Commercial Factoring to end disputes attributed to missing, misplaced Their manuals, in use on every continent of Association (BCFA) or denied receipt of notification emails for the world, are setting the industry standard, notices of assignment, notices of default, and their reputation as the one-call solution for Colombian Association of Factoring borrowing base certificates, and other important factoring problems is growing. By consistently (CAF) notifications. It also helps speed invoice collec- introducing innovative, viable products, vigilantly Commercial Factoring Expertise tions with proof of invoice delivery irrefutably cultivating an extensive alliance of Strategic Committee of China (CFEC) starting the accounts receivable aging clock. Partners and providing the professional expertise www.cfec.org.cn www.rpost.com/ifa demanded of an industry leader, FactorHelp IFA Member Benefit: IFA Members save strives to maintain its goal of providing the Ecuadorian Factoring Association $300! Subscribe to 1000 units RMail plan for unparalleled service the factoring industry (ASOFACTOR) only $390! (Normally $690) expects from a solutions partner. www.asofactoring.org 972-722-3700 • www.factorhelp.com COLLECTIONS IFA Members receive a discount of 10% on FCI their consulting fees and 5% discount on all www.fci.nl The Collection Law Group, Inc. The Collection Law Group (“TCLG”) is a group FactorHelp products in the IFA store. Romanian Factoring Association (RFA) of lawyers who collect past due commercial CREDIT www.asociatiadefactoring.ro accounts receivables from businesses across the United States. Our collection approach has Ansonia Credit Data World of Open Account (WOA) been helping finance and factoring organiza- https://woa.community/ With more than 250 Factors and over $800 tions collect past due amounts more quickly billion in data, Ansonia provides Factors and more efficiently and more cost effectively than ABL lenders an innovative way of managing BROKER other approaches. Our approach combines the debtor and fraud risk. Our business credit reports Rainstar Capital Group best of collection agencies with the best of law feature current and historical days-to-pay Rainstar Capital Group is a multi-strategy private firms giving our clients higher recover amounts information collected directly from the accounts equity firm based in Grand Rapids, Michigan that more quickly with less cost. At TCLG we call our receivable departments of small and large factors makes direct investments and provides advisory approach our “Attorney Driven Approach”. and other companies across all segments. debt capital. Rainstar partners with factoring Brad Magill • [email protected] 855-ANSONIA • 855-267-6642 x.103 firms who have clients seeking debt capital www.tclginc.com • 888-304-4347 www.ansoniacreditdata.com products separate from the factoring solution for IFA Member Discount: For the first five IFA Member Benefits: Free VIGILANTE™ growth needs. Through its multiple lending plat- collection files sent to TCLG by IFA members Portfolio Analysis. 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Trusted by all of the majors because of the sheer Based Advance, Merchant Cash Advance, volume of Factor trade and 98% third-party VeriCore data coverage of active businesses in North Business Lines of Credit, Inventory Financing, VeriCore is the pioneer of ZERO fee collec- Purchase Order Financing, Equipment Leasing, America, Credit2B is a cloud-based platform tions! A ZERO fee collection takes place when that empowers accurate and timely decisions Accounts Receivables Factoring, CMBS loans, VeriCore compels the debtor to pay for the cost Agency loans, Bridge Financing, Hard Money and by connecting the experiences of trade credit of collection. ZERO fee collections don’t happen grantors around their common business Commercial Contractor Credit Lines. Rainstar’s every time, but many IFA members have already lending platform finances clients from $10k to customers. We combine this highly valuable experienced ZERO fee collections over 100 trade network information of approximately $300M and covers all credit profiles across the times! VeriCore is a contingent, fully licensed and listed product lines. $700B in recent receivables with live bureau and bonded agency with an A+ rating with the BBB public filing information to provide compre- Kurt Nederveld: [email protected] and a strong focus on compliance. Our propri- hensive financial risk profiles, all in real time. (616) 953-6036 • ww.rainstarcapitalgroup.com etary process is designed to create constant and Our dashboard also provides Factor specific IFA Member Benefit: Rainstar Capital Group methodical pressure on a debtor which compels scoring, Factor client risk pools, monitoring, peer will pay your IFA membership dues. 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18 The Commercial Factor | FEBRUARY 2020 FactorsNetwork earn an origination fee and have the oppor- HubTran FactorsNetwork provides an online platform tunity to participate in the funding. HubTran is the leading provider of back office where Factors share trade experiences with each Robert Thompson-So • 866-272-3704 automation technology for factoring compa- other. Members are able to pull unlimited Credit www.Liquidcapitalcorp.com nies. HubTran’s SaaS platform streamlines Reports as well as monitor and analyze their [email protected] invoice processing, document management, portfolio. Transportation Factors benefit from MARKETING and exception handling. Customers increase our CarrierMonitoring and ChameleonCatcher productivity 4X, reduce errors and increase programs and their clients profit from our 50 Words LLC capacity. HubTran’s innovative technology lever- LoadBoard. We even offer a Sales Tool to help 50 Words is a marketing outsource firm for ages Optical Character Recognition and Artificial you find new clients. companies that either do not have a marketing Intelligence to simplify back office work without 435-659-4612 department or that need to add more manpower requiring massive investments of time in training www.factorsnetwork.com to their existing marketing team. They serve as and integration. IFA Member Benefits: 50% cost savings for your dedicated marketing department. Matt Bernstein the monthly membership fee. It is normally 610-631-5702 • www.50wordsmarketing.com 630-544-0459 • www.hubtran.com $1,000 per month, but IFA members will pay IFA Member Benefits: IFA Members will IFA Member Benefit: 1 week trial and waived $500 per month. receive five free hours of marketing services setup/integration fees with the purchase of any marketing service. CREDIT CARD PROCESSING (Offer for new clients only) ProfitStars® Clarus Merchant Services ProfitStars® is an industry-leading provider of RECRUITMENT AGENCY portfolio management systems for commercial Clarus Merchant Services offers a custom Commercial Finance Consultants finance, and offers a common framework program developed specifically for how the for factoring, asset-based lending, inventory Factoring Industry processes their credit card Established in 2002, CFC is the premier provider finance, and lines of credit. Our dynamic transactions. Our program provides detailed of human talent to the factoring industry. CFC’s Commercial Lending Center Suite™ incorporates reporting that allows tracking of each invoice goal is to provide their clients with the best all-digital loan origination, decisioning and and fee transaction for easy account reconcilia- available human capital and the most current portfolio management workflows that save tion with their customers and clients. We work industry information to assist in accomplishing time, improve accuracy and improve the overall with each member to ensure all processing costs their growth potential. borrowing experience. are covered and that they are doing so within 469-402-4000 • www.searchcf.com 205-972-8900, option 3 • www.profitstars.com the guidelines of MasterCard / Visa. In addition [email protected] we provide IFA members direct access to their IFA members will receive 10% off new IFA members will receive an additional ProfitStars lending solutions product account manager for immediate response and 60 days added to the guarantee on all support. purchase. For IFA members who are placements. currently ProfitStars customers: Free one David Powers • [email protected] SOFTWARE day FactorSoft refresher course, per year, at 540-222-3925 • www.clarusdc.com ProfitStars’ training facility in Birmingham, AL. IIFA Member Benefits: IFA members that Artis Trade Systems purchase the CardX program receive a one- TAX COMPLIANCE time $200 rebate* Artis Trade Systems offers ArtisPay, the *Once the member has processed a whole revolutionary Supply Chain Finance (SCF) app Tax Guard month using the program that allows banks and lenders to provide buyers Tax Guard fills a critical gap in a commercial and suppliers with a flexible, customizable, easy- lender’s management toolset with ePaymentAmerica to-use enterprise-grade software. ArtisPay is a efficient, real-time and actionable insight into ePaymentAmerica is the nation’s leading fully cloud-based software-as-a-service (SaaS). the true, non-public IRS tax compliance status provider of processing services for the factoring, Partnering with Artis Trade endows lenders of their prospects and clients. Our due diligence A/R financing, and P/O financing industries. They with a high-tech innovative partner with deep reports, tax compliance monitoring and offer IFA members exclusive VISA, MasterCard, industry experience that will help market and resolution solutions support commercial lenders American Express and Discover pricing, a grow their SCF program. throughout every stage of the funding life-cycle. discount on their virtual gateway, and a discount 480-250-8186 • www.artistrade.net 646-502-4478 • www.tax-guard.com on PCI Compliance Certifications. IFA Member Benefits: IFA members will Rich Porterfield: [email protected] 901-385-5327 • www.epaymentamerica.com receive a 33% discount on the registration fee. IFA Member Benefits: IFA Members will [email protected] FactorFox receive ten free IRS Tax Return Transcripts IFA Member Benefits: Interchange Plus within the first 30 days of service. One time Pricing* Bundled Monthly Service Fee of FactorFox has been providing factoring software offer also extended to current IFA members. $30.00 (includes IRS regulatory compli- to small, medium, and large companies during ance, account maintenance, PCI compliance, the last 15 years. FactorFox is beautifully UCC SEARCH designed, user friendly, and powerful. With virtual gateway & online management tool.) First Corporate Solutions *Based on volume/transaction count. every line of code we write, we challenge the status quo. We are continually finding ways to First Corporate Solutions is a full-service public FUNDING mitigate risk, and give our factors a competitive records provider specializing in the research, retrieval, and filing of public records nationwide Liquid Capital Corp. advantage in the factoring industry. 877-890-1897 • www.factorfox.com and internationally. Their services include Liquid Capital has been in the Factoring industry industry standards such as UCC, and litiga- since 1999 and entered into a partnership with IFA Member Benefits: In addition to the one month free trial for all users, IFA members tion searching, UCC and corporate filing services, Next Edge Capital in 2015. This relationship has nationwide registered agent coverage, and allowed them to pursue an aggressive growth receive an additional month to try out the complete software. real property title searching, as well as unique strategy focused on the following key initiatives: solutions such as state and county account • The acquisition of A/R portfolios from Factors Finvoice monitoring designed specifically for Factors. looking to exit the industry Finvoice offers traditional factoring companies 800-406-1577 • www.ficoso.com Member benefit: Trailer fees for the life of and asset-based lenders a simple-to-use and [email protected] the acquired accounts comprehensive software solution to help them IFA Member Benefits: IFA members will • Soliciting Factors to join the Liquid Capital become a modern and efficient online lender. receive a 10% discount off of the retail rates network to gain access to additional capital, Finvoice came out of a passion to help small of their signature state and county account a robust range of working capital and trade businesses who generate 67% of jobs and 50% monitoring product. finance products, extensive marketing and back of the world’s GDP. office support Andrew Bertolina Member benefit: Liquid will pay your IFA 310-951-0596 • www.finvoice.com membership or Annual Conference registra- IFA Member Benefits: Complimentary tion fee for the following year. landing page review/optimization for digital • ABL referrals from existing Factors who would conversion. 15% discount on pricing for the not normally fund this type of transaction first year. Member Benefit: The referring Factor will

The Commercial Factor | FEBRUARY 2020 19 2020 IFA CONFERENCE FEBRUARY 2020

FOR COMPLETE CONFERENCE DETAILS, PLEASE VISIT FACTORINGCONFERENCE.COM

Set Your Sights on the 2020 IFA Annual Factoring Conference Some of the best minds in the commercial finance industry will provide two full days of instruction at the IFA Annual Factoring Conference. Take a sneak peek at the schedule, which offers sessions for every experience level and ample networking opportunities.

BY HEATHER VILLA

From April 22 to April 25, 2020, EXPERT-LED EDUCATION All Experience Levels: attendees will gather in Nashville at Some of the best minds in the • Digging for Hope: Turning Wine the largest conference in the world commercial finance industry will to Water and Other Modern-Day exclusively designed for commercial provide two full days of instruction, Miracles finance professionals. Dedicated to delivering expert-led education • Report from the Courts providing the foremost educational and topics for everyone. Innovative • How the Economy will Affect and networking experience in the learning formats and engaging Factors industry, the 26th Annual Factoring instructors allow you to align your • The Big Shift: How Customer Conference should not be missed. education with your personal needs, The conference offers a world of Behavior & Technology is interests and learning level. With Changing the Future of Factoring endless possibilities where hundreds sessions geared towards attendees • Idea Exchange of industry leaders gather together with different levels of experience to define the future of factoring and and positions of responsibility, • Play Factoring Jeopardy commercial finance. The 2020 IFA this event will provide maximum • Supply Chain Finance Annual Conference aims to prepare educational content designed for • Legal Panel you and your business for the days every skill set. ahead. • A Look Into the Future of Factoring Here is a look into the seminars and Technology sessions offered.

20 The Commercial Factor | FEBRUARY 2020 Management and Owners: activities and other networking ADDITIONAL TRAINING • Learn from History or be Doomed opportunities that are available Before the conference starts, we will to Repeat It throughout the week. Learning be offering our Factoring Essentials • Roundtable for Senior Executives about the industry through the Training Course with George experience of others is one of • Acquisitions — Everything You Thorson (executive vice president, the best ways to avoid missteps Wanted to Know Triumph Business Capital) and Gen in developing your business. • The Story of Customer Experience Merritt-Parikh (president, Allied Expanding your networking circle Affiliated Funding). Legal counsel Beginners: also allows you to gain resources for will also be provided by Jim Cretella, • Factoring 101 future business. More than 20 hours Esq. (attorney, Otterbourg, P.C.). If • Technology 101 for Factors will be devoted solely to networking. you are a new factor, an individual Some of the events we have planned • Factoring Essentials new to factoring, or just wish to this year include: enhance your knowledge, this Operations and Account • Triumph Welcome Reception — add-on course will provide you with Executives: sponsored by Triumph Business the background you need to become • Rise of Fraud in the Digital Era Capital and Triumph Commercial a successful factor. • Roundtable for Operations Finance Personnel • Thursday Evening Reception DON’T BE LEFT BEHIND International: • Thursday Night Tax Guard Dessert The countdown has begun to • Canadian Legal Panel Reception — sponsored by the 26th Annual IFA Factoring • in Cross-Border Tax Guard Conference. Excitement is building Factoring • Golf Tournament as previous years’ records are being surpassed. Join us as commercial Young Professionals: • Young Professionals Reception finance professionals from around • Roundtable for Young • IFA Chapter Reception the world gather in Nashville to Professionals • Nashville Food Tour prepare for the future. Stay ahead • Young Professionals Reception • Breakout Small Factor’s Lunch of the curve and build meaningful, Women: • Breakout Transportation long-lasting business relationships • Roundtable for Women in Factor’s Lunch that will help your company thrive in Commercial Finance • Closing Event at the Country Music the times ahead. Top notch educa- Hall of Fame and Museum tional sessions, a vibrant exhibit hall Small Factors: and invaluable networking oppor- • Idea Exchange • Roundtable for Small Factors tunities make the 2020 IFA Annual • Small Factor’s Breakout Lunch Factoring Conference the must EXHIBIT HALL Transportation: attend event of the year! • Finding the right solution provider • Current Topics in Transportation is essential to your ’s Factoring success. The Factoring Conference • How Driverless Trucks Will Exhibit Hall is your one-stop destina- Heather Villa is the Impact Factors tion to finding the right products managing director • Transportation Factoring and providers to help your company of the International Breakout Lunch achieve new heights. Resources Factoring Association. are available in many catego- She is responsible Additional sessions will be added to for managing and ries, including software, credit, the agenda soon. Please check the directing the IFA’s external Factoring Conference website for an consulting, funding, , communications as well as updated schedule. backgrounds, credit card processing, managing the business affairs of the marketing, insurance, participations, Association. She assists with event planning, speaker selection, and NETWORKING OPPORTUNITIES UCC, publishing, tax assistance and specialty financing. Breakfasts, contract negotiations for all training Networking is an opportunity to lunches and breaks are held in the seminars and conferences, including the annual Factoring Conference. expand your knowledge, learn from exhibit hall to maximize your time Heather can be reached at others, share your experiences and with the vendors and for greater make valuable connections. You 805-773-0011 ext. 301 or at networking opportunities. [email protected]. won’t want to miss all of the socials,

The Commercial Factor | FEBRUARY 2020 21 “THE MUST ATTEND EVENT OF THE YEAR!” For Anyone Involved with the Factoring & Asset Based Lending Industries

OMNI NASHVILLE, NASHVILLE TENNESSEE

“THE IFA CONFERENCE IS MY FAVORITE OF ALL INDUSTRY APRIL RELATED EVENTS.” 22-25

THE WORLD’S LARGEST FOR CONFERENCE THE COMMERCIAL FINANCE REGISTER INDUSTRY TODAY OR REGISTER ON-LINE AT: • Over 60 Speakers 50 Vendors CALL TO REGISTER: factoringconference.com 011 P.O. BOX 39, 805-773-0 mail: • Exhibit Hall with Over INTERNATIONAL AVILA BEACH, CA 93424-0039 FACTORING ASSOCIATION 6627 BAY LAUREL PL., STE. C, • Hospitality Suites & Closing Event AVILA BEACH, CA 93424 factoring.org • Activities including Golf & Food Tour

The International Factoring Association is registered with the National Association of State The IFA offers CLE credits This conference has been Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the for the Factoring Conference. approved for CAEF credits. National Registry of CPE Sponsors. State boards of accountancy have final authority on the Visit [email protected] for For information on approved acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be Information on approved states or contact the IFA programs & courses, please submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org. at 805-773-0011. contact the IFA. LEGAL FACTOR by Steven N. Kurtz, Esq. FEBRUARY 2020

Back to the Basics — Your Notice of Assignment

A notice of assignment may seem like a basic concept, but Steven Kurtz explains that when you take a deep dive, these documents are predicated on several complex topics, which he explains in detail so factors will be ready when a dispute arises.

As I mentioned in a prior article, For a change of pace, this article “all in” for work and my hobbies. inspiration for this column comes was inspired by a recent yoga class. But a recent yoga class that primarily from three sources: cases I enjoy practicing yoga, which offers focused on the absolute basics was that come across my desk, issues an outlet from work and keeps me a refreshing break from some of that I see from my colleagues and flexible when I invariable fall off one the more advanced classes, and real life stuff. of my bikes. As a pseudo-mellow it inspired me to write about the Type A personality, I tend to go most basic principal in factoring — the notice of assignment.

Steven N. Kurtz, Esq. has represented factors, banks and asset-based lenders on a continuous basis since 1987. He is the co-general counsel to the IFA and a founding partner of Levinson Arshonsky & Kurtz, which has offices in California and Oklahoma. He practices in the areas of , insolvency, workouts, loan documentation and trade finance, in both transactions and litigation matters. He can be reached by phone at 818-382-3434 or by email at [email protected].

The Commercial Factor | FEBRUARY 2020 23 Now that you have your security provides that the instructions in LEGAL FACTOR agreement in place, all terms of the notice cannot be changed by your agreement are binding upon anyone other than you (I’m happy FEBRUARY 2020 the debtor (your factor client) and to give anyone my form of notice, all creditors. UCC §9-201. Once you just email me and I will send it). purchase an account, under UCC The UCC provides that the notice While this initially seems like a §9-318, the debtor has no further must be authenticated. That is simple topic, it actually stirs up many legal or equitable interest in that defined in UCC §9-102(a)(7), but underlying issues. As you peel away account. Your contractual right to simply requires that the notifica- the many layers and do a deep dive, collect accounts both before and tion be signed or reduced to some the notice of assignment is predi- after default, are set forth in UCC tangible form. My preference is a cated on several complex concepts. §9-607. A well drafted factoring paper letter to the accounts payable agreement will also contain a department. TRANSACTIONS GOVERNED BY number of rights and protections in ARTICLE NINE The form of the notice is pretty your favor. straightforward, as long as it’s done To start, pursuant to UCC §9-109, Often, when you are dealing with correctly. The bigger issue is getting all transactions which either grant third parties in your collection the notice and payment instructions a security interest or involve the process, your rights under the locked in. Many businesses have purchase of accounts, are governed factoring agreement may some- their account payables handled by article nine of the UCC. That times be questioned. Therefore, online through a portal system. It means, your factoring agreement it’s important to know going into is critical to make it into the portal requires the attachment of, and the the situation, that all terms of your and stay there. Once in the portal, perfection of, a security interest. agreement are binding on the factor you should make sure you have These are easy concepts. You client and all its creditors (UCC continual online access and verify are simply granted a lien against §9-210), the factor client no longer that the portal is, in fact, what it various items of collateral (which has any rights in the account it sold purports to be. Once you are in a must include accounts) and perfect (UCC §9-318), and you have the sole portal, you can usually check in on against most of the collateral by right to collect the accounts (UCC the status of your payment and filing the UCC-1 in the state in which §9-607). Therefore, while third ensure that you are set in the system your factor client originates, using parties in a dispute with you may try as the party to be paid. the name exactly as reflected in the to alter your basic rights, they are organizational documents filed in precluded from doing so by statute. PAYABLE MANAGEMENT that state. (For individuals, use the SERVICES name on their official identification, NOTICE OF ASSIGNMENT but don’t finance humans. Make Some account debtors employ them incorporate or file an LLC, an Now comes your notice of assign- a payable management service easy and inexpensive thing to do). ment, which you will send to the (which also sets up the early pay account debtors and which will on the payable side). The payable operate to cause the account management service is not the debtors to pay you and not the account debtor, using a strict factor client. This, of course, is definition of account debtor in UCC As you peel away the governed by UCC §9-406, which §9-102(a)(2) because it is not the many layers and do a provides that the account debtor party obligated on the account. discharges its payment obligations But you should still make sure that deep dive, the notice to your factor client before the the payable management service notice of assignment by paying has your payment information of assignment is your client. Once notice is received, correct. Account debtors are given the payment obligation is not rights under the UCC. They always predicated on several discharged unless the account have the right to question or ask debtor pays the factor, setting up you to provide more information complex concepts. the payment over notice problem. to support the notice of assign- The form of the notice clarifies ment. That is only fair, because that all accounts are paid only to the account debtor wants to make you, provides where the payments sure it pays the right person. Under should be made, and further UCC §9-406(c), you will need to

24 The Commercial Factor | FEBRUARY 2020 respond to an account debtor’s §9-405. Basically, if the modification request for more information. This You always need is in good faith and performance can usually be accomplished with an in the agreement is ongoing, the explanation letter and a copy of your to keep track of modification will be effective against financing statement. While things the secured party. If the contract sometimes get silly, most account the relationship has been performed, the notice of debtors don’t request further assignment has been received, and information, but for those that do, between your the only thing left to do is pay, then a polite letter and a copy of the any modification of the contract financing statement should do the factor client and between the account debtor and trick. Sometimes, account debtors the factor client will not be binding refuse to pay because the contract account debtor. against you, and you should have the prohibits assignment. This position right to collect the full amount. is wrong. As the factor, you simply Because so many things can happen, are getting the right to purchase or you always need to keep track of the finance accounts, plus the right to your payments. Once the notice relationship between your factor collect the payments. Thus, you are has been sent, you will always be client and account debtor. You protected against such contractual subject to recoupment claims your will need to know if there are any prohibitions against assignment account debtor has in favor of your problems and always keep track of under UCC §9-406(d). factor client.2 A recoupment claim your payment. Just being in contact Now that you have sent the notice relates directly to the contract at with the account debtor reinforces of assignment, you need to collect. issue between the account debtor to the account debtor that you are There are intertwined UCC provi- and factor client. Once the notice in the picture, which means it is less sions which protect both you and of assignment is received by the likely that your payment instructions the account debtor. Just like UCC account debtor, you will take subject will be disregarded, and you will §9-201, which provides that the to set-off claims in existence before usually know what is happening with debtor and creditors are bound to the notice of assignment was the relationship, providing that the the terms of your security agree- received, but not subject to any parties are honest. ment, you will be subject to all of the set-off claims which arise after the The UCC is a definitionally-based set terms of the agreement between notice of assignment is received.3 of rules. Virtually every concept that the account debtor and your factor we have discussed has a definition client. UCC §9-404(a)(1). Thus, SET-OFF CLAIMS in the UCC. Moreover, the rights set it is important to understand the forth in the UCC are intertwined, agreement between the account A set-off claim is a claim by the account debtor which does not arise meaning that rights derived in debtor and your client. If there is a one section can be amplified or written agreement, get a copy and from the contract at issue, but from other dealings between the parties. proven through knowledge of other read it. If there are no written agree- sections. The basic foundation of ments, and only “naked invoices,” Careful attention should be paid to a written contract between the account the factoring industry, the notice you would be best served to get the of assignment, touches upon a IFA-approved invoices and use them. debtor and the factor client. Often the contract will address set-offs number of sections which all add up The IFA-approved invoices have when there is a long set of dealings to providing you with the necessary a few provisions on the back that between the parties. The ability to protections. Invariably, most of you are not intrusive to the account enforce set-offs, based on events will be in a dispute relating to your debtor, or hard to use, but have that happened long ago, set forth notice of assignment, most typically, good protections for you. Often in a written agreement, will likely a payment over notice or a refusal your factor client will mess up or be enforceable against the factor to pay. Hopefully the concepts engage in bad acts, causing the under UCC §9-402(a)(1), because it is discussed here will be of assistance account debtor to look to the factor contained in the written agreement. when the time comes. • for redress. You are not liable in tort 1 or contract, for things your factor Sometimes the account debtor and UCC §9-402 2 client may have done.1 But even the factor client will modify the UCC §9-404(a)(1) 3 though you are not liable for what contract between them, which will UCC §9-404(a)(2) your client may have done, things often affect your right to payment. your client has done always affect This can get tricky, and the rights of secured parties are addressed in UCC

The Commercial Factor | FEBRUARY 2020 25