What’s New is New Again

ABLTrain On-Line Training Seminars for Asset Based Lending Education

ABLTrain 2.0

Sometime in 2005, we got cookin’ to brew up self-paced on-line Asset Based Lending Training Seminar Courses and it took a short seven (7) years until November 2012 to launch the catalog of 14 courses.  Not a cheap or easy business to build and maintain and we talked about that journey in the first BLOG on this site.

Since 2012 we used student feedback and got the rework done in batches such as retake workflows for quizzes and other feedback to students.  We have National Association of State Boards of Accountancy (NASBA) approval for CPE credits too.  Our corporate-wide plans also expanded to offer both our standard Courses and Customized Courses to train entire departments and have a supervisor track the progress.  Overall, we did A+ work on Generation 1 and 1.1 of the ABLTrain products.  But now, it is time for 2.0 to take over.


Time and technology are always new and in the past few years we have seen the slow death of the Adobe Flash technology, now replaced with what is known as HTML5.  While HTML5 runs on all devices (phones, tablets, PC, MAC), that meant reworking almost 130 lessons and over 500 pre-quizz assessments and other Flash items that can’t convert to HTML5.  Our learning management system also changed and we’ve moved along with the newest technology for secure and speedy delivery of the Courses.  All good stuff to evolve into.

Starting this week, www.ABLTrain.com (a product of Clear Choice Seminars, Inc.) is updated to HTML5, hosted on a state-of-the-art learning management system and ready to deliver ABL Training Seminar Courses for the best ABL learning experiences in the business. The web-based delivery is all scalable to your device screen size and devices (phones, tablets, PC, MAC) and we’re NASBA Quality Assurance Service certified to promote higher standards of delivery. We’ll be expanding our offerings in 2018 and 2019. Enhancing the best choice for individual or departmental training and new again!

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Copyright © 2018 Clear Choice Seminars, Inc.  All Rights Reserved Images licensed from Fotolia.com, Joe Caplan and NounProject

Better ABL Monitoring From Existing Systems

This Changes Everything


Head-in-SandWe ABL folks have had our heads in the sand for far too long with respect to technology-based monitoring and business intelligence.  ABL risk reduction starts with AssetArchive as the solution to reduce fraud and improve monitoring with little additional cost.

 You can monitor ABL deals with
more Business Intelligence.

Traditional ABL has some monitoring, but not too much monitoring because of the expense associated with running an office that needs both space and people to do the extra work at some cost in cash.  Factoring companies have tended to do smaller deals with higher risk levels where the monitoring and losses are paid for in the fee structure.  Basically, ABL tends to be both a lower income and less monitoring cost model for a given loan.  However, fraud and willful misconduct risks remain even with some reporting, periodic field exam reports and Loan Officer reviews.

Flavors of ABL


Monitoring levels in ABL will vary with the risk levels tolerated by a given Lender.  The collateral is pledged to the Lender (not owned by the lender).  High cash-flow deals with strong earnings, perhaps publically traded companies, Etc. could be Libor-2 pricing while a high growth startup company could be Prime+3 priced (maybe less / maybe more).  These differences in risk levels tend to translate to monitoring levels that are less intense for the cash-flow deal and more intense for the higher risk deals.  Some deals might get a monthly certificate balance with no cash controls and higher risk deals could include daily monitoring of sales, cash and even inventory.

The data coming in tends to be as simple as monthly aging and inventory reports to more intense levels of monitoring (for ABLs) that could include daily sales, cash or inventory reports.  None of that report-level information is compared to anything on a daily or weekly basis.  Some of the items could be selected for telephone or postal mail confirmations, typically on a random alphabetical basis covering the A-Z letters over 6-12 months.  Field examinations can be annual to every 60 days depending on the levels of risk, trust, technical and legal issues, Etc.  Financials might be spread monthly or quarterly.

Factoring-Like Details Would be Nice to see, but…

Details Below the SurfaceFactoring has more intense monitoring because the receivables are purchased and owned by the Factoring Company with replacement of the old ones that age out over 90 or 100 days or some similar structure.  The invoices are tracked from cradle to grave and that means entering the data into a system that tracks and ages each invoice and cash application.  The discount factor (thus the word Factoring) might be some percentage off of each purchased invoice (i.e., 5% for a 95% advance).  But the cost to run the system includes getting that data into the factoring tracking software, applying cash and adjustments, confirming new debtors and major balances on a recurring basis (perhaps confirming up to the advance rate of 95% of receivables), field examinations, Etc.  Income is higher, but so are the costs to run the operation for people, space and charge-offs.

ABL is simply a lower cost product to administer for people, space and charge-offs and the risks assumed by the Lender tend to be lower than that of a Factor.  We can’t see all of the detail at this price level, but we wish we could find a way to monitor more with efficiency.

On a positive note, these different financing products fund the needs of Companies and provide different price levels based on different levels of achievement for the entrepreneur, company or entity.

Cost of Not Knowing

Calculating Costs

Monitoring takes data and time and it can be costly if you start applying cash to invoices like Factoring does.  But what if you could dial it back a bit an use most of the data that you are already getting?  What if your monitoring showed you some of the risks?  What if you were alerted to the potential fraud areas or if you could confirm the risker items and not just take random stabs at it with A through Z Debtor samples?

Clearly ABLs have stayed away from tracking invoices and applying cash and confirming some A-Z items every month.  But if you look at your process of gathering agings and inventory reports, you never look at the detailed data, even if you download some of it.  Most ABL shops cannot answer the following questions:

  • Does the aging foot?
  • Does the aging age correctly?
  • Who are the new debtors each month?
  • Does the inventory report foot?
  • Does the inventory report have the correct extended cost n the Total column?
  • Are invoices reasonable amounts compared to the past?
  • Are balances reasonable amounts compared to the past?
  • Do invoices step-down to lower amounts as they age out?
  • Can I confirm riskier invoices and balances?
  • Can I find fraud and willful misconduct between audits?
  • What are the trends of the Borrower Concentrations over time?
  • What are the trends of the Borrower ineligibles over time?

The I don’t know answers are caused by a lack of detailed data and getting only the AR, AP and Inventory reports but not using the data in them because of the costs to do that.

“We’re an ABL shop, not a factoring shop and
the costs are too high to monitor that way!”

This is no longer true and a poor excuse to continue the old way.

But… What if you could monitor more like a factor and not have to pay for the staff, space and data management?  What if the data analytics were less expensive than more staff and charge-offs?


The Missing thing is Using Data

Missing PieceMost ABL shops are downloading agings somehow so that they can calculate ineligibles, get concentrations, and simply be more efficient.  The smarter Lenders use our software AssetReader to get the data converted from reports and setup highly detailed ineligibles, foot reports, group credit memos, import addresses, Etc.  But here is the kicker… with that data now imported, we can archive it and do data analytics to help you monitor a loan efficiently and with little effort.  This is a systematic approach to using the same data that you are already uploading to save time, but now your monitoring is on steroids.

Get More…



More means… That bullet list noted above becomes I do know for all items!

  • An optional Confirmation module lets you use custom confirmation letters for each Borrower and the items pulled are risk based, not just random.  You can also execute confirmations by email, fax, phone or call logs while gathering updated contact information for enhanced confirmation delivery methods over time.
  • Hot-Spot reports of new risks are presented
  • Metrics can be set as circuit breakers for large variations
  • More analytics without the staff, space or time and at little cost
  • Reduced charge-offs (what’s that worth?)
  • Integrate ABL specific credit reports (coming soon)

Is the Solution Costly? (no)

What’s the cost?  Our download software AssetReader already sets the standard for ease of use when downloading data for ABL specific reports and helps to keep the back-office and audit process efficient.  Adding AssetArchive and the optional confirmation module is pocket change compared to any loss and the enhanced insights are going to improve loan monitoring and efficiencies.  This level of business intelligence for ABL is clos to factoring, but without the cost of space and people to run it.  A huge leap forward for ABL and you can keep your current Loan Monitoring System too!

Knowing Sooner is Better

Enhanced monitoring techniques that use data and business intelligence will help Lenders spot problems and mitigate adverse conditions sooner.  That means shutting-down abusive Borrower practices, focusing on risk-based confirmations, reducing losses and making higher profits.  It will also let you spot the problems sooner and not later, giving Lenders a chance to get rid of the junk before it blows up.

AssetArchive Changes Everything

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Copyright © 2017 Clear Choice Seminars, Inc.  All Rights Reserved

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Stupid Backups Again

Broken laptop

Case 1 – Bank Field Examiner closed the lid for 3 days without backing up and the drive got corrupted and crushed the work in the file.

Case 2 – Bank had a bad batch of computers with a hard drive failure rate of about 30% in the first year.

Case 3 – Field Examiner got hit with a virus that wiped the hard drive and it could not be rebooted.

Case 4 – Field Examiner had their car broken into while at dinner and the laptop was gone

Case 5 – Something like this happens to you.  Are you prepared?

Too Busy for Common Sense…

Real Estate has the Realtor adage Location, Location, Location but of course you might not want to live in a shack.  Backups are the broken record voice of “You should do it several times a day.. Backup, Backup, Backup…” being met by your mental resistance of “Shut up IT Geek, I’m too busy to do that!”  Of course you might not want to explain losing a week of work to your boss or the Borrower with the excuse that you were too busy.

Old House

The Value of Data:

The value of data is DIRECTLY proportional to the time and
expenses spent gathering it and working with it

Imagine that you bill $1.00 per minute of $60.00 per hour.  A lot of the time you bill for is at much higher rates than that.  Suppose you lose 3 days of work from not having backups.  That’s $1.00 X 60 minutes X 8 Hours X 3 Days or $1,440.00 of lost value.  Add two more nights at a hotel, plus food, plus a rental car for the extra three days and you just added another $500.00 to the bill bringing us to $1,940.00.  Call that $2,000.00, we all like round numbers.

Try to explain this loss of time and increased expense to the Borrower or your boss.  You might look like a zero yourself?  What if the loss of data was a whole week or two weeks?  You’re thinking “OMG, Noooooooooooooooo!,” but you’re also thinking, not me.

What Goes Wrong?

You will never be able to convince me that people wake up in the morning and declare “I’m going to fail today!”   That is not human nature.  More likely and unpredictable worse case scenarios could include dropping the laptop computer, users pulling network cables or USB backup drives while things are saving, hard drive failures, loose batteries killing power for a fraction of a second and shutting down during saves and other gotcha’ things that cause files to become scrambled and corrupted or lost completely.  The worse case includes other possibilities that you cannot predict such as a car break-in or theft, spilled coffee, hotel room robbery or some other loss of the computer or computer functionality.  You can guess that over-time things will go wrong and attempt to be prepared to deal with it.  Failure is part of life, it is how you deal with it that matters.

ALWAYS Backup When…

You need good habits and it must go beyond closing the lid on the computer because hibernate works so well for you most of the time.  Disciplined, always, smart good habits that are more than closing the lid.  This is simple, ALWAYS backup when going to lunch, when leaving for the night, when traveling home.  This includes backing up when working at the office or at home.  ALWAYS:

  • Going to lunch
  • Leaving work
  • Before traveling

But is it a Backup?

We need a definition of what a backup is to get this right:

A Backup is a copy of the original files and folders
to both a device that is not part of the computer
that created it AND is physically separated from it.

Break it down…

Copy… to a device that is not part of the computer that created it – Making a second copy onto the same computer hard drive will not help you when the hard drive crashes, when the computer is stolen, when you spill coffee all over the computer or drop it hard.  Therefore, the copy must be placed somewhere else besides the computer that created it.

AND is Physically separated from it – Copying to a USB drive that you put in your laptop bag is not separated from the computer.  What if you are mugged?  What if the car is broken into or stolen?

Organize and Backup What?

Backup your data as priority #1.  Sure you can do a full backup and restore with a backup drive or specific cloud services, but this Blog is not all about a full restore, rather it is about the data that you spent all that time creating.

Some users partition their hard drives so that instead of having just drive C (one partition), they have drive C and D split on the one physical hard drive in the computer.  The strategy is that the programs go onto drive C and the data goes onto Drive D and then you backup only your data (all of D).  There are programs, including Windows, that let you change the partition size and splits.

Incremental backups are when you only backup the files that change and this is the most efficient thing to do, specifically for field examiners that are traveling and only changing a few files during the week.  Certainly backup the Exam folder that you are working on that week.

Backup to What Place?

Computer BackupsGlad you asked.  There are lots of solutions to this and some are better than others:

Drives – Backup to a USB drive or portable backup device drive.  These can get lost or be stolen and it is tough to keep them separated from the computer bag.  It is certainly better than nothing at all and backup data is at least not on the hard drive of the computer.

E-Mail – Send the file to yourself, perhaps to your office email or Google e-mail Etc.  YOU must have an Internet connection and YOU must manually do the upload.

Cloud Drives for Backup – Virtual drives like DropBox, OneDrive, Google Drive and others.  That requires an Internet Connection or tethering to your cell phone to get the upload, but it is at least out of the building and backed up.  YOU must have an Internet connection and YOU must manually do the upload, but you could synchronize folders instead…

Cloud Drives for Files in Use to be Synchronized to the Cloud – Virtual drives like DropBox, OneDrive, Google Drive and others will synchronize your files as they change.  You store your working file on your hard drive, but it is linked as a synchronized folder.  As your file changes, the cloud drive gets updated.  You have two copies; one local on your computer and one in the cloud drive.  YOU must have an Internet connection or tethering to your cell phone for this to work.

VPN – A lot of Lenders and companies setup a VPN to share and move files.  This form of backup is like the Cloud solution, but you own the servers.  YOU must have an Internet connection and YOU must manually do the upload.

Backup Services – There are good services out there like BarracudaCarbonite, iDrive, Etc.  These plans offer a range of daily backups and as-you-work backups.  The as-you-work options are the way to go.  YOU must have an Internet connection for this to work, but the settings control the backup frequency and thus it is more automated.  It does you no good to do a daily backup that is scheduled for a time that you are driving home or when you have no Internet connection at all.

Almost Done… Username and Passwords and Scans

I could Blog about this stuff in another post, but I’ll keep it short.

  1. Username – NEVER-EVER-NEVER use ADMIN or ADMINISTRATOR as the username for anything.  It is a default name that is commonly used by routers and other products and hackers know this.  Make it unusual and not something that someone would ever guess.  NOT your name.
  2. Passwords – Upper and lower case letters, numbers, symbols and make it LONG.  Anything less than 15 characters is not good enough.  Combine words to make up new words, add numbers and keyboard symbols… DOUBLE it to make it twice as long.  First letter of each word of your favorite song lyrics or bible quote plus numbers and keyboard characters as long as it is obscure and not predictable.  Unusual, mixed with letters, numbers and symbols and of course at least 15 characters long.  Don’t use Admin and then your dog’s name (Fido).  DO be paranoid and diligent here.
  3. Virus Scanners and Malware Scanners – NEVER disable your scanners and password protect the settings in them.  All files will be inspected by the scanners as you get them from e-mails, file saves, Etc.  A computer virus, worm Trojan, Etc. will try to kill-off the scanner first and password protection prevents that if a new one comes through undetected (to be crushed in a future scan).  Ransomware and other data killers mean that you could need those backups even with scanning diligence.


Be a Hero You  don’t want to be the zero, you want to be the Hero.

Backup, Backup, Backup.

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Copyright © 2017 Clear Choice Seminars, Inc.  All Rights Reserved

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It Was 20 Years Ago Today

20 Years

On or about January 5, 1996 our partnership started and the Articles of Incorporation were filed January 19, 1996 to create FinSoft, LLC.  Sitting here one night last week, all of the core events that took place over the past 20 years came into this blog with sections named Product Evolution, Side Effects, Lessons Learned and The Next 20.  But it sounded like a WiKi about us and not what we want to convey on this 20th Anniversary.  Not about us as a company at all, but more about a combined twenty years of friendship with our software users that has defined the real spirit of FinSot, LLC.

So the entire Blog article was scrapped, even though it was done before the new year began.


What we Want to Say

With a bit of reflection, it is more important today to convey how we feel about the past 20 years than a history lesson about FinSoft, our philosophies and how we did it.


Than you all for your support, your ideas, your advice, your ongoing support.

Thank you all for your kind words, referrals, compliments and positive energy toward us.

Thank you all for your fanatical friendship and like-minded goodwill toward us and our products.

Thank you to lenders such as Ally Bank, BB&T, California Bank of Commerce, City National Bank, Compass Bank, EastWest Bank, Far West Capital, Goldman Sachs, Heritage Bank, HSBC, Huntington Bank, Manufacturers Bank, PNC Business Credit, Royal Bank of Canada, Rosenthal & Rosenthal, Wells Fargo Bank, Whitney National Bank and many more for your ongoing support and friendship.

Thank you to outsource firms like ABL Resources, Atlantic Financial, Blue Water Consulting, Boston & Associates, Bronsky & Company, Cascade Credit Services, CBC Group, Commercial Finance Consultants, Cometrics, Cost Reduction Solutions, Dopkins & Company, Durkin Group, Freed Maxick, Fuller Landau, GTM lender Services, Lender’s Consulting Group,  Lowell Douglas, Martin & Associates, Richter Consulting Group, SIA Group, Trump Lender Services, Unified Examiners, Zelenkofske Axelrod and the dozens of small and independent ABL outsource practitioners that use our products.  We are so much better because of you

When you have changed jobs, we came along too.  When you had ideas, we have added them.  When you make recommendations to others to look at our products we are flattered.

Thank you for all of your ongoing enthusiasm for our original products and for inspiring our passion towards making them better!

The Next 20?

For this moment… Happy Birthday to us!

While we’ve done a lot in 20 years, we’re just getting warmed up and there is much more new stuff to do.  The evolution plans are deep here.  We’re going to continue to make ABL better, safer, smarter and more fun.  Oh  YES we are going to with your help!   THANK YOU!

Joe & Don, Founders ABLTrain Icon

Copyright © 2016 Clear Choice Seminars, Inc.  All Rights Reserved

Images licensed from FinSoft, LLC and Fotolia.com © 2015  All Rights Reserved

New Ineligible Reserves – Wal-Mart and Others

Wal-Mart Ineligibles

The Wal-Mart / Amazon / Big-Box Picture

There is a storm brewing with Wal-Mart leading the charge to push vendors for lower prices and it started on July 1, 2015.   Wal-Mart, Amazon and others are pushing vendors to take deeper discounts and reduce prices, but with tactics that can affect your revolving loan / asset based lending collateral.  The Wal-Mart fees, stocking charges, advertising curtailments and more are typical of what is also happening with sales to Amazon and other Big-Box Stores (B-BS) retailers; there will be more and this blog is the taste of things to come in B-BS retail.  Shareholder earnings take a priority when the giants come to grips with performance and the little guy (your borrower) be damned.

New Stores and New Warehouses Stocked Cheaper

Wal-Mart is seeking to have vendors take a discount of perhaps 10% to stock new warehouses and new stores.  You might wonder why?

  • Because the holding period is longer until normal flow builds up
  • Because there is a higher cost to stock and open new stores and warehouses
  • Because Wal-Mart wants to compete with Amazon and someone needs to pay for that
  • Because they can

Handling Fees

Another new addition at Wal-Mart will be handling fees for the existing warehouses and the follow-up (not initial order) to stock the shelves at the warehouse.  Stocking fees are not new, they are just going to be more pervasive now.  Items like liquor and certain perishable goods will be exempt from this stocking fee.

Store Branded Products and Electronic Advertising are Growing

Wal-Mart Low Price smallWal-Mart is changing some of that co-op advertising that they have done because on-line e-tailing is growing and since Wal-Mart owns the web servers, there is little added cost to run Wal-Mart products right along other vendor’s products.  Perhaps more than a little competition with priority placement for Wal-Mart goods?  But there is a ton of money in that advertising cost and the strategies to reduce vendor advertising expenses and pass the savings to Wal-Mart include:

  • Having vendors cut their end-display, banners and display costs to pass that savings to Wal-Mart
  • Having the vendors stop preparing on-line marketing materials (artwork , Etc.) to reduce vendor costs
  • Having the vendors reduce their internal marketing efforts that push sales to Wal-Mart

So now we have a Giant telling the vendor how to sell their product and how to save costs on marketing while simultaneously pushing Wal-Mart products as featured items on-line and through other marketing materials.  Store brands vs. name brands and the store decides what gets top billing.

Discounts – Out with the Old, In with the New

Change or Same old...Prompt-pay discounts are nothing new and in some economies they go away and in others they are more prevalent.  Some of the normal Wal-Mart Terms were 1%/N20 and this of course helped vendors to pay for payroll and materials.  But the “new deal” is an additional 1% (2% total) and a stretch W A Y – W  A  Y – W   A   A    A   A   A   Y   Y   Y  — out to 90 days (ninety days in case you fell off your chair).  Not sure what the terms are if you don’t take the 90 days and 2% discount?


Slow Goods = Slow Pay

Fast or SlowGoods that turn slower than normal in the stores will be expected to take even longer pay period changes.  Goods that sit on the shelf for more than 60, 90, 120 days will be penalized with extended pay terms and many will still be subject to the discounts.

They Can Bank on It $$$$$

Wal- Mart is also extending their reach into the financing of these goods.  Vendors that lack the appropriate lines of credit can get their financing from Wal-Mart and the rates may be more favorable than some lending relationships from revolving lines of credit or factoring.

Warehouse Cost Savings to the Borrower?

If you are a manufacturer and Amazon or Wal-Mart of some other B-BS is your warehouse, that might actually be an OK deal.  Think about how much it costs to run a warehouse, finance or rent it, insure it, provide security, utilities, employees, forklifts, Etc. and this B-BC warehouse management case could be a good deal for some; it is not all bad in many cases to pay the fees if this saves the warehouse costs.

Let’s Add-Up The ABL Reserves

A Summary Please

Wal-Mart Fee GridAt this time it is not clear if the discounted terms fee or the stocking fee will be applied to the initial order (new stores or New Warehouse), time will tell soon enough.  Different vendors could have different terms than noted here and it will certainly vary from one B-BS to another.  This illustration of the 10% Initial order (new stores or new warehouses) and then ongoing fees is just one possible scenario.  Clearly you’ll need to investigate, document and then monitor the case for each Account Debtor and each of your Borrowers.

That Was Fun, More Numbers Please

This will stretch out your Borrowing Base loan and collateral days and that means more interest income to Lenders while possibly increasing ineligible risks if care is not extended to allow for the longer terms (see recommendations below).  Moving from 20 days to pay to 90 is a whopping 450% increase in outstanding days and it could push concentration limits to untested levels for some lenders.  Actual days could be more with normal paperwork processing, transit time, mail time, Etc.; although the 450%  (600% if you go to 120 days) difference would have the same 5-7 additional days (reality) in the case of 20 day or 90 day terms plus any additional processing time.

How will that affect your Borrowing Base?  It’s going to have more days of cash outstanding for sure and in many cases the concentration levels of Wal-Mart, Amazon, other B-BSs will double or triple if monthly shipments are the norm; expect temporary concentration issues on seasonal goods.

Cushion is Toast, Concentrations are Up!

chshion is toastAsset Based Lenders typically use a 90 day eligible base and with normal 30 day payment terms, the AR turns in 35-45 days in many cases.  Assume an average 42 days of AR turnover and the lender has 48 days (90 – 42 = 48 days) of “cushion” remaining in case of delays of payments within that 90 day limit.  That cushion in this example is 53% (48/90).  But add the Wal-Mart case with 90 or 120 day payment terms (longer on slower turning goods) and you can see that your ineligible cushion days are up in smoke while your concentration balance goes way up.

Other Lender Considerations

 The Bank of Wal-Mart (TBOW / Bank of Big-Box Stores = BOBBS)

The trade finance provided by Wal-Mart is both competition to existing lenders and a move into financing that has been coming for a long time.  We all know about the small branch office bank at our local grocery store and perhaps Wal-Mart and similar B-BC stores.  Consumer lending and one-stop banking could carry the TBOW / BOBBS brand in the future.  It’s easy to imagine financing your car or house with that convenience and you might also get a great rate.

It is a bit of a nightmare to imagine Wal-Mart or another B-BS double squeezing a Vendor that relies on Wal-Mart sales and has Wal-Mart financing for those goods.  The possible threats of reduced Wal-Mart purchases and financing offsets against money owed to the Vendor carry borderline ethical and legal undertones for squeeze-play tactics.  Any BOBBS in a work-out the vendor situation sounds like a new chapter in finance.  Regardless of how transparent this might be, the net cash back to the vendor (your Borrower) is going to be after the fees and interest.


Secured Lenders want a first position lien on all assets now and hereafter acquired through blanket liens.  The TBOW financed piece is a carve-out from secured loan collateral with Wal-Mart holding the inventory and payable and then TBOW getting the proceeds from sales to date and acting as recipient of the interest earned and fees owed.  With Wal-Mart paying TBOW (themselves), Lenders will need to remain diligent to catch such offsets and to carve out the collateral reserves needed for the discounts, fees and interest.


Wal-Mart’s Current Ratio will take a trip to the other side because retail and on-line sales have instant cash turnover on the Asset Side and now the payables are going to mushroom into something new.  Like the original Dell model (7 day cash turn, 30 day payable turn), expect negative working capital ratios for Wal-Mart.  Your borrower on the other hand is going to get dinged for having growth in both receivables and the revolving loan, but your AR turnover numbers are going to take a hit where the B-BS retailers dominate while your liquidity and debt to equity ratios are going to change a bit too.

Some Recommendations

The following list will no-doubt be expanded in the months to come, but the basics should not be overlooked:

  1. Interview the Borrower and determine the extent of Wal-Mart and other B-BS terms in place.
  2. Get copies of the Purchase Orders and Contracts from all B-BS and Concentration accounts and read them in detail to determine the levels of invoices affected.  You might find no issues at all or you’ll be able to quantify the needs for loan monitoring of specific Account Debtors when special terms are found.
  3. Have the Borrower designate the 10% initial sales invoices with specific markings such as:
    • Credit Terms stated in the aging as Wal-Mart 10% Stocking Fee, Net 90 (WM10/N90)
    • Specific Invoice sequences used for invoices that include the initial stocking fees
    • Separate Wal-Mart Accounts for the Initial Orders (E.G., Wal-Mart Warehouse 999999 Initial Stocking)
    • Put the B-BS stores on a separate aging report, as if they were a division of the Borrower’s company.  Note that from an operations standpoint this might help the company to see the profit and costs of those B-BS sales in a more focused (divisional) light.
  4. Be smart about GAAP accounting and revenue recognition procedures.  Because the Borrower has full knowledge of the terms, they must book the reserves when the sale is made; this is a sure-thing discount, much like negotiated / contractual medical rates with Insurance Companies.  While B-BS accounting will be tracking their discounts earned against the gross invoice, the seller is your Borrower and they have a potentially large offset here.  These terms are not a normal 1/2% or 1% discount taken at the time of the cash receipt from some debtors that do take the discounts; rather, this is a sure thing and it should be reserved on your Borrower’s books as a discount to revenues.  They can fix it if the discount is not taken.
  5. TBOW / BOBB could file liens to help secure the notes and one would expect at a minimum the right to offset fees owed against payments due would be in the agreements.  Running a lien search on your Borrower is prudent.  Perhaps Wal-Mart and others will make this easier to determine after they are inundated with inquiries to make this easier.
  6. Run those Lien searches on ALL locations and ALL names that your Borrower has.
  7. Discuss filing Purchase Money Security Interest (PMSI) filings to see if that makes sense for your collateral coverage.  The time and effort to file on many customers (Account Debtors) is often a negative if you are not in the trade finance business, but here you are just filing on just Wal-Mart or other B-BS.  Expect push-back on any such filings, but they can’t expect silence on collateral lien filings methods allowed by law.
  8. Modify the Loan and Security Agreements to compensate for the change in business terms.  Due date aging reports or due date aging for extended term customers should be investigated.  This needs to be done now, we’re into July and reality is ticking away inside your new sales to Wal-Mart and possibly others.  It is going to affect all of your loans that have Wal-Mart / B-BS debtors.
  9. Download your agings to help find this stuff.  We’re #1 at this (www.finsoft.net).
  10. As noted in the opening paragraph to this Blog, you’ll be seeing this with Wal-Mart, Amazon and other B-BS retailers in the coming months.  Plan to deal with this now.
  11. No way to know how the OCC is going to look at this.  Portfolio concentration by major debtor across your portfolio has some risks with the likes of Wal-Mart, Lowes, Home Depot, Etc., but it has not been a significant concern with prior payment terms and turnover of AR into cash.  This will raise concentration levels to a much higher level and portfolio-wide concentration analysis or incremental risk rating downgrades and resulting reserves could become a regulatory requirement.  It might be poetically funny if some of the B-BS “lenders” (The BOBBS) are perceived as giant financiers worthy of OCC oversight, complete with special reserve requirements [just saying… It happened to CIT, GE Capital, Etc.].
  12. Recalculate your ratios for Liquidity and Debt to Equity, the AR is going to grow on the Asset side with loan growth on the Liability side.  You may need to adjust covenants due to a change in business practices that are not under the control of the Borrower.
  13. Watch interest coverage and debt payment coverage, you might see less of it.  Again, adjust covenants if needed due to a change in business practices that are not under the control of the Borrower.
  14. While Lenders will enjoy higher earnings on commercial loans from this change, the interest cost sensitivity for low equity and marginal income Borrowers could be a tipping point for some and sensitivity analysis for those at risk may be helpful in being proactive with covenant changes to avoid technical or [gulp] real defaults.
  15. Have some feedback on this; something to correct, change, add, Etc.?  Send us a note and it will get added based on merit.
  16. We’ll be adding Big-Box Discounts to ABL-Help Classic and Pro for the next release and you should be using this tool anyway.

Yet another ineligible to consider.  ABLTrain Icon

Further Reading:




Copyright © 2015 Clear Choice Seminars, Inc.  All Rights Reserved

Images licensed from Fotolia.com or created by Joseph R. Caplan © 2015  All Rights Reserved

Why a CPA / CA Audit is Not Good Enough for ABL…

NOTE / DISCLOSURE: We [FinSoft, LLC] make great ABL Audit (AssetWriter) and download software (AssetReader / Asset Archive, AssetArchive Confirmations) that do extensive analysis without the time needed to adjust things.  Our ABL field exam software can even consolidate hundreds of divisions with just four mouse clicks or bring in data from other examiners and AssetReader downloads.  Our AssetReader setups are often shared with Operations and Field Exam for fantastic integration and cross-department consistency.  AssetReader download software pulls in reports that no other software in the world can.  That means real-world time savings and happy users too.  Our training courses are the high standard of the industry and we take a lot of time to write and prepare our courses – see www.abltrain.com for our self-paced ABL Training Seminar Courses for your education needs.  Finally, the author of this Blog is a CPA and this article sheds light on what the scope of a CPA or CA Audit covers and does not cover (CPAs / CAs will be happy with scope clarification).

Stand in The Borrower’s Shoes for a Minute

It is not surprising that the Borrower, especially a Borrower that has no ABL experience would ask about why they need to have and pay for an ABL Audit.  Consider their position:

  • They just paid $$$$$ for an audit
  • They just went through the time it took to get that audit done
  • They will incur additional fees for the ABL field examination per day
  • They might incur travel expenses for the field examiners
  • The ABL is not willing to share the examination with them
    (just the negatives findings)

Looking at that Borrower list of reasons, maybe you’re glad it’s not your money and you’re not a Borrower?  But the cost of doing a commercial loan is a combination of fees, interest, legal, Accounting, Audit, Field Exams, Appraisals, background checks, Etc.  WOW that costs some $$$$$!  Getting that loan is more than just interest cost to the Borrower.

… and after a minute of reflection, the Borrower’s voice …

“But I just had a CPA / CA audit…”


Bakers dozen rolls

 A baker’s dozen – Why the ABL Field Examination?


1. Taken as a Whole

The Black Sea coast with shipCPAs / CAs provide an opinion on the financial statements “Taken as a whole.”  So what’s that really mean?  It means that there might be a little bit of error here and there, but the numbers are approximately right.  Some people liken this to “how out of focus the vision of the truth is.”  Imagine seeing a ship on the horizon, but not being able to determine the color, the size or the type of the ship.  As it approaches you get more details and a better picture and your brain sees it as a cargo ship, but you never get too close to the details like the railings, the ladders, the doors as you stand at the shore.

Taken as a whole means that the positions stated on the financial statements are approximately correct and not materially wrong.  How much would your opinion of a company change if you knew the numbers for revenues, income, assets, liabilities and equity were approximately 95% correct.  A similar company would still be comparable and you would not be materially mislead, just a bit out of focus in one or more areas, but it would be correct when taken as a whole.

Asset Based Lenders need more details because the error in their collateral should be small and while one asset deficit could be offset by another asset’s surplus and it is a good 95% correct when taken as a whole, that is not good enough to monitor and lend on collateral that needs to be more in focus.

2. Point in Time

Maybe you’re a neat person and when you have company at your house or business, always in perfect order.  Or maybe when you have company you cleanup a mess and shove stuff in the closets, basement and garage?  At the point in time that your guests arrive, all is neat and orderly.  Accounting data is often a mess and it takes a lot of cleanup work.  Sometimes the adjustments from prior years are not booked to the accounting system and the CPAs / CAs make a cumulative prior year(s) adjustment plus the current year adjustments.  It looks all nice and neat when you get those crisp cotton bond pages bound by the CPA / CA firm doesn’t it?  But there is another story about how it got to be that way.  It is often a massage this, nip that, tuck this, adjust that process to get to a CPA statement.

That CPA / CA report is probably OK when taken as a whole and for the time periods shown (people worked hard to get it that way).  But an ABL lender needs to get reports at least monthly and perhaps daily or per borrowing in some cases.  How reliable is the reporting on a daily, weekly or monthly basis?  The CPA / CA audit has no focus on that.

3. Finding Dilution

Due Diligence and DirectionDilution to an ABL Lender is the non-cash adjustment that washes-down the AR collateral.  Put another way, “Does a dollar of sales turn into a dollar of cash?”  In general, the answer is no.  But the CPA / CA audit is showing all of the numbers net of these adjustments.  Many adjustments are credit memos, charge-backs, write-offs, finance charges and finance charge write-offs, cash discounts, short pay adjustments and more (see below).  The audit report does not show these adjustments and the audit itself might not look at these adjustments at all if they are considered immaterial or when the accounting treatment is considered sound and when it properly states the net balance based on professional judgment of the CPA / CA.

Asset Based Lenders take dilution seriously and it is a big factor in the analysis of advance rates used on the Borrowing Base Certificate.  Someone (a Field Examiner) needs to go in and do a “history lesson” on the monthly sales and collections and adjustments that run through AR, Inventory and often payables too.  It takes time and patience to focus on those collateral dilution and adjustment issues.

4. Discounts and Allowances

The section above mentions discounts and allowances and a first year accounting student would know that those amounts come right after revenues.  But the CPA / CA audit presents revenues as a net number (and as noted above, net of the credit memos, write offs, adjustments, finance charges, Etc.).  So looking at revenues on an audit is not helping you to know about these discounts.  A lot of companies don’t bother with this category at all, they just issue credit memos for any receivable write-down.

The ABL Lender needs to get a grasp on this reporting to determine if the discounts and allowances are processed against AR and when.  Not a big deal if they have no discounts and allowances or it goes somewhere else like through credit memos.  The question is all about how much dilution comes from that category and will the lender get that information in a timely reporting manner (rather than a year-end cleanup by the accountants).  The focus on this area might show empty entries (for good or bad reasons) with timely entries or delays in processing the adjustments.  As long as it is approximately correct at the date of the year-end audit, then it is not materially wrong as presented by the CPA / CA firm.

5. Net Sales (find the credits)

The books and records might have credit memos processed every month.  In some cases the volume of credit memos might be just 1-3% and in other cases 10-15%.  But the CPA / CA audit shows net sales and the volume of credit memos is hidden from sight.  Ongoing new sales have not yet gotten the cleanup treatment (it can take a day or weeks or months).  Did the accountants consider the credit memos that might dilute the outstanding receivables when formulating reserves?  How much is that?  I’ll bet you can’t see that on the financial statements taken as a whole.

The ABL lender needs to get the timing and the volume of these credit memos and gross-up the net sales so that dilution can be computed against the gross billings.  Some formulas:

Net Sales + Credit Memos = Gross Sales
Gross Sales – Credit Memos = Net Sales

Obviously the ABL Lender wants to know how much cash a dollar of sales can make and it is usually not a dollar.  So gross Billings is the “dollar” in this case and the credit memos and other non-cash adjustments are the dilution against that dollar.  A selection of the credit memo activity is usually analyzed to see what drives the credit memos (by reason code) and how dilutive the items might or might not be.  But it takes a focus on the AR Stats to get that information and audit reports taken as a whole just don’t have that.

6. Records

Business NerdA Lender that specializes in ABL needs to have good records to rely upon because of the monthly, weekly, daily reporting requirements for the Borrowing Base.  It is financial statements (Income Statement, Balance Sheet, Cash Flows, Reconciliation of Retained Earnings, reconciliation of collateral documents to the Borrowing Base, Etc. ) that are needed.  But lenders that do daily or as-needed advances might want billing journals and cash journals or even inventory reports.  The field examinations from the Lender could take a long time if the records are a mess and require manual adjustments.

ABL Lenders want push-button quick accounting extracts and reports.  They want to focus fast and clearly and they want it to be reliable.  But how reliable is it?  It takes on-site field examination efforts to determine that.  Also, revisit #2 above, the audit was a cleaned-up point in time, not necessarily how it all works day-to-day.

7. Monthly Trends

Following the Trend IndicatorsThat annual audit is indeed a point in time with this year and last year all cleaned up.  But seasonal trends can show a top and bottom for financial needs and even seasonal losses.  The deal structure should accommodate those needs.  But the audit has just one (or two) points in time and that is not going to show all of the different trends and seasonal needs.  Asset Based Lenders require trended data to see the past and help companies through trend cycles.  A monthly focus?  Yes, but weekly or daily in some cases.

8. Inventory Goes Round and Round, or Maybe Some Just Sits?

After the CPA / CA audit has evaluated many things and the numbers are about right when taken as a whole we get a nice Inventory number.  If inventory turns in 90 days, then by the time the audit is issued, the inventory would have turned over in many cases.  Those net inventory numbers (net of a reserve for this, a reserve for that…) are constantly changing due to sales and purchases.  Can the Borrower report in a timely manner to the lender?  How much did the CPAs adjust at year end?  How reliable are the inventory reports that will be sent to the lender?

It is through more detailed testing that the Lender can perform test counts, cost testing and turnover analysis.  Maybe the Lender can discover a slow moving or obsolescence report?  But the point-in-time nature of an audit is not the balance right now and the point in time cleanup of the accountants is not going to help with reliable and ongoing accounting that gets reported to the Lender periodically.  The ABL Lender needs to focus on the reliability of reporting for inventory.

9. Software Downloads

My career in Audit started in 1984 and that included some downloading of data via 1200 baud modem using Kermit.  We could pull monetary unit samples from large companies for confirmations and inventory selections.  But we still did a ton of spreadsheet stuff to get numbers collated and corrected for many audits.  Fast forward just 30 years to 2014 and manual adjustments, messy agings and inventory reports are still here.  Yuk!, you sure don’t see that in that spiral bound audit report.

Can you download data from their system and get it processed correctly?  Can the Borrower report electronically at any time?  What is the depth of the available reporting (AR, Inventory, AP, Sales and cash journals, Etc.).  Great tools make difficult or impossible reports available for electronic analysis [yeah, we make the software that does this].  A focus on data gathering is a big win for the Field Examiners and the Operations staff and when tracked over time, that data can reveal problems before a field examination and data can feed confirmations or requests for documentation from the account officers.  It saves a lot of staff time and that reduces operating costs for the lender.  It reduces fraud and mitigates losses too.

10. Financial Analysis Details

financial statement detailsA typical audit will include the required elements in an audit such as a Balance Sheet, Income Statement, Statement of Cash Flows, Reconciliation of Retained Earnings and Footnotes.  Bigger divisions (ten percent or more) will be listed with some additional detail.  But most of the items shown are net of all adjustments and are rolled-up from many related categories.  For example, SG&A expenses will appear as one line, yet may contain 500 lines of detail.  Same with cost of sales.  The Balance sheet items might be net of reserves and they will certainly be net of the CPA / CA adjustments that bring the numbers back in-line to materiality requirements (see below).

The ABL practitioner needs to see details and support for the numbers in the financials.  I could list dozens of examples but consider just one here.  A company that builds delivery or maintenance trucks of some kind records revenues when the finished truck has passed quality control inspection.  Yet the P.O.s  from the customers clearly state “FOB Shipping Point.”  That little difference in title transfer and revenue recognition was $2.5 Million in Gross profits and it made it through an audit from one of the biggest accounting firms in the world.  You need to get closer to the detailed numbers to see the netting and accounting of the data both month-to-month and then as presented and that annual audit report to help assess reliability.

11.  CPA Materiality Percent ±

The word “Materiality” may be calculated by the CPA / CA on a per Asset and “Taken as a whole” basis.  For example, the AR might be off by ±3% and the inventory might be off by ± 4% and fixed assets might be ± 1% with an overall materiality of 4% or 3%, Etc.  Note that some of the testing depth is based on internal control strengths and weaknesses.  Weak internal controls will mean more testing in a given area and could mean, for example, the difference between CPA / CA test counts of well controlled inventory and a total count of sloppy inventory (the latter more expensive and a clue to an Asset Based lender that inventory accounting reliability is maybe not so good).  But the audit does not mention the hours spent fixing the problem, it only reflects the need to get the net to the materiality level.

With 3% materiality, would you care if AR is $10,000,000 or $10,300,000 or 9,700,000 when considering the overall size of the company and performance?  Probably not as an investor, but as an ABL lender, you want to know that receivable collateral is 100% correct and properly reported.

The original inventory could have been -12% and then the CPA / CA adjustments put it back to ± 3%.Remember the CPA / CA audit will adjust those errors out from testing that they do and they will get those numbers closer to 100% correct through adjustments.  The ABL Lender is getting real-time push-button reports every month or week or day and they are not adjusted.  So how good are the reports when the audit minions are not adjusting things?  That closer look validates the reporting accuracy and some findings can lead to reserves.

12.  Lifestyle of Owners

Luxury yachtWay back in my Barclays days, I heard about a deal (Leveraged Buyout) that had a wild-child new owner that took the Loan money and had a blow-out loan closing party, purchased an Aston Martin and proceeded to live a great lifestyle with the corporate credit cards to the tune of $100,000 per month (a mistress too).  And his wife had a company that made very simple railroad freight car products and she was pulling $200,000 out of the company with close to no sales dollars.  Yeah the deal blew up.  I have not yet seen a CPA / CA audit report with pictures of the owner on her yacht or with her Ferarri collection, so the audit report paper is barely two dimensional in many ways.  Yes, some owners are self-made inventor / investor types, but they can still have a cash draining lifestyle.

Hands-on data gathering, background investigations and just being there matters.  Asset Based Lenders may allow the cash flow to the owners to be consistent with earnings performance and you need to get a little bit closer and more in focus to see that.

13. Confidence to Make Decisions / Exception

Finally, when you look at the dozen items above and we have that ABL field examiner (and appraisers and background checks experts) checking it all out, we have more field-level intelligence to work with.  That might reveal some reserves that need to be in place here and there, but the collateral reporting and control is now smarter too.  When decisions from the Lender are needed, there might be greater confidence from the tighter record keeping and past field experience so that exceptions and problems are respected and trusted enough to keep the company going.  No interest rate of fee or cost or audit report can compare to the value of building a company with a partnership of Lender and Borrower confidence.  Closer and in focus knowledge matters.


The CPA / CA Audit shows us the adjusted and GAAP accounting presentation with rolled-up summary numbers.  That is a foundation to compare internal records against.  But it is an overall big picture and taken as a whole approach that lacks details for reporting and loan monitoring.  We ABL people sure do look at a lot of detail on specific areas that a CPA / CA report just cannot show.  More detail puts the ABL issues in focus.   ABLTrain Icon

Copyright © 2015 Clear Choice Seminars, Inc.  All Rights Reserved

Images licensed from Fotolia.com or produced by Joe Caplan

THE Guide to Selecting an Outsource Field Examination Firm

Shhhhhh, it’s a secret…

We Get This Question A Lot:

NOTE:  We’re a software and training company, not an accounting firm or field examination provider.  I started in ABL in 1985 and have over 19 years of hands-on field exam experience.

It seems like I can guess the question when someone that I don’t know contacts me about hiring an outside field examination company.  “Can you recommend anyone.”  Basically the answer is “No.”  For legal reasons, I will not recommend any one person or firm and you need to compare your needs to the experience of the firm, the staff experience, availability, travel needs, travel cost, hourly cost of the firm, and more (a.k.a. All Other / Etc.).  I do recommend interviewing at least Five (5) firms.

But then the conversation turns to the more important questions.  I know they don’t just need a breathing person to show up in living condition.  They know that too and that is where the conversation goes in the right direction.

What You Should Be Asking in The Interview:

Maybe you need a field examination NOW or maybe you need an inventory standard cost expert or maybe a specialist in gold or jewelry.   You can find them on the web and we have a link to a list of examiners at the bottom of this Blog article too.

Measuring expectations for ABL Field Examinations

Key Points for ABL Outsource And Key Questions:

1.  What is your ABL Expertise?

This can be a specialist firm or a division of an Accounting or consulting firm that has specialists that have years of ABL experience.  You should be able to get:

a. Background data on the principals that shows an ABL focus.
b. Staff size that are ABL specific (not necessarily the whole firm)
c.  Education levels such as college degrees and certifications of the staff such as CPA, CFE, CIA.
d. Have some or all of the Examiners worked in the ABL field for Lenders?

2.  Do you have any Specific Industry Experience Focus?

You might not need this, but then again, you might need someone that specializes in retail or manufacturing or healthcare or car dealers, Etc. and not Oil and Gas industries.  It is common to find ABL field exam providers that specialize in manufacturing and distribution, it is indeed most of the industry.  But if you need examiners with extensive experience in a given area, it is worth finding the right firm or even the right examiner at a firm.

3.  Do you Download Data?

This is the most NOT asked question.  Most Borrowers have years of data (1GB hard drives were available in late 1995 and the software was caught up for the Year 2000 conversions).  The more progressive and savvy examiners download data.  It saves a lot of time, it verifies numerical accuracy and it assists with ongoing reporting to the Lender.

This is not an Excel answer, this is data specific software to get into the poorly formatted Excel files, PDF files, Word-DOC files, Etc. that come along.  This is software that can calculate ineligible collateral and take single column ledgers and break-out the debits and credits by transaction code immediately.  Firms that lack this technology are behind the times and are taking more time to do the exams.   You are looking for products like AssetReader (yeah, we own that company).  Downloading data saves the Borrower time and money, it is a competitive advantage in cost for both the Lender and the Examination firm.

Download ABL Data
a.  What products do you use to download data with?
b.  Do you use AssetReader?
c.  What percent of your staff is using data download software?
d.  Has your staff been trained on the use of the data download software?
e.  What is the likelihood that the examiners on my Loans will be using data download software?

“If you’re not using Data Download software,
then you must be paid by the hour” 

4.  What is your Turn-Around Time once the Exam Fieldwork is Done?

It sounds easy, but there are some one and two person field exam providers that are booked-up week after week and there can be delays.  Trust me, I was one of them and I used to do the writeup work into the AM hours to get ready for the next one.  If you have a time sensitive expectation, you’ll need to find a provider with the right mix of work and work-ethic.

5.  What Kind of Recommendations Might You Make for Collateral?

These reports are not appraisals, but the ineligible collateral should be documented so that the formula and details can be integrated into the leder’s Borrowing Base Certificate (BBC) and tracking.  This discussion might reveal that the firm has no clue at all what a Borrowing Base certificate is or contains.

Other Questions:

1.  What are your hourly rates?

No rates stated here, it varies across the world.  I have seen some rates that are [perhaps] unbelievably high for specialists in certain industries.

2.  What are your travel expense policies?

It is rare to fly first class or stay at  star hotels.

3.  What geographical areas do you have covered with ABL specific examiners?

Travel can be expensive and add time to the process.  I once spent 1.5 days getting to Idaho and due to mechanical problems with the airplane, two days to get home.

4.  Do you have security policies in place and in use for file encryption on laptops and Servers?

This is simple to implement and an encrypted drive cannot be read without your super-long upper and lower case letters and symbols password.

5.  Do you do background checks on your employees when hiring?

It is not expensive to do this and it adds credibility to the firm doing the work.

6.  Do you have in-house W-2 employees do the work or do you outsource (1099 subcontractors)?

Some people prefer employees and some don’t care.  Some lenders have policies about third-party vendors being used by a primary contractor.

Color_Red_X_Icons_Fotolia_20850416_XS  What Not To Ask:

The most common question from a small bank that does not do ABL work on a regular basis is “How long will it take?” or “How much will it cost?”  The truth is that you can run into the following scenarios:

1.  Multiple Divisions:

The transaction seems to be one company, but it is actually several divisions in several places and with several different accounting systems.

2.  Bad Books

The transaction is a single company, but they have not closed their books in years

3.  Some Bad Combination of Factors

Some combination of the above

There are some small ABL field exams that I have done that took one field day to do the AR and Inventory count with another day for the writeup.  But then a similar sized transaction with bad books and records and uncooperative management, people that are not available for explanations and other avoidance behaviors that have caused the time to go to four days.  And that’s for just one division.    Your mileage may vary, but we cover field examination planning in some of the ABLTrain Seminars.

A Huge List of ABL Examiners to Get You Started:

Visit ABLPage  ABLTrain Icon

Copyright © 2014 Clear Choice Seminars, Inc.  All Rights Reserved

Images licensed from Fotolia.com

Training Time for Asset Based Lending

Parking Meter Expired

Training Course Fantasy:

In a perfect world, you could get together with some of the best people in the business and they would all happen to be great teachers and they would all possess excellent course development skills  and they would all have keen presentation development skills too.

In a perfect world, the length of time to teach students would be unlimited.  Courses would not be limited to 8 hours, 16 hours, 20 hours, Etc., they would actually be complete.  It used to be this way in Public Accounting at places like the former Arthur Andersen and the Bank of New York Credit Training program were legendary for depth of study.  The annual International Factoring Association  Conference delivers training in spades with a combination of panels, expert speakers and discussion formats.  But those are exceptions for live training.

In a perfect world, the students would not be side-tracked with office work, phone calls, text messages, e-mails and mindless YouTube videos to distract them.  There would not be distractions that are detractors from the learning process.

In a perfect world the courses would not require travel time and expenses and the cost of the course would be about $20.00 per hour.

In a perfect world, the people that you invested in with the training would not leave and take the brain-trust with them.  They would stay and not port your training dollars to the next employer.

In the perfect  world, the courses would include some cases, some quizzes, some testing to make the students accountable with a passing grade or passing completeness procedure.  Employers would know that some standards were met.

In a perfect world, the time needed to train people completely would be spent and there would not be compromises to get as much training in as possible in 1 or 2 or 2.5 days, rather it would be based on completeness, not time.

If we could stare into space and dream away these limitations they could be eliminated in a virtual sense.

Training Seminar Reality:

Deep in concentration

Of course the education of our workers (and ourselves) comes in many forms.  On-the-job training with a good coach goes a long way towards our goals.  Seminars, courses, conventions, Etc. come in many forms, but the actual education gained is not always what it could be.  Travel, interruptions from the office, e-mails, text messages and distractions take away the focus from a lot of students.

Seasoned veterans with lots of experience are not necessarily the best course development people and they often lack training delivery experience.  Take a look at the ongoing public school argument about not giving teachers bullet-proof tenure.  Some of them can’t teach, even with ten plus years of experience.

Some of the courses are thrown together with basic bullet-points and simple examples.  In some cases the instructors are walk-on “volunteers” that have not seen the materials before or they are not pleased with the course materials.  How often do they think or even note in class that they have better examples in the office or would present it another way?

rality check ahead sign

But the above items are not as bad as the worst thing of all… TIME.  The time for any training course is limited.  Years ago, one of the field examination schools was five days (actually 4.5 days) and now it is three days.  The course was adjusted to make it take less time, allegedly focusing on more important materials while maintaining the revenue stream for the presenting organization, but decreasing costs to the presenter and those traveling.  The ability to complete case studies, quizzes and other testing measures is not possible with time-crammed courses.  When you cut-out materials to fit a time schedule of 2.5 days, 3.5 days, Etc., you don’t have time for cases and testing, you lose some slower students and you skip some important stuff.

Most of the courses finish half-way through day 2 or 3 because people want to travel and get to the airport.  So once again, the materials are cut-down to make it fit a time limit created for profit, not for education purposes.  Should education (seminars, courses, conventions, whatever) be based on make-it fit the time?

Why Compromise?:

It seems that you need to compromise.  Really, it seems that way, but you don’t need to.


Clear Choice Seminars and ABLTrain have developed e-Learning courses that are complete and take the time needed to get it done right.  In many instances we spent more than one day on a single slide or single case during the course development.  ABLTrain took seven years to release because we did it right and we’re still tweaking and revising things to make the materials and course selections even broader.  Courses are NASBA certified too.

There are no compromises in the time needed to complete the courses, the materials are outstanding, the instruction is as good as it gets (video and detailed click-through slides).  ABLTrain’s on-line self-paced training courses have testing to create accountability.  Prices allow for one person or the entire staff to be trained and you can train several people with ABLTrain for what one course costs with other methods.  Retention is very high too, with quizzes and cases all along the way.   These on-line and self-paced e-Learning methods reduce the normal office interruptions and distractions because students resume exactly where they left off.  ABLTrain Icon


Copyright © 2013 Clear Choice Seminars, Inc.  All Rights Reserved

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The Lance Armstrong Story and How it Relates to Borrower Fraud

For those of you that have been through a fraud (frauds), the characteristics of Lance Armstrong are parallel to some of the fraudulent characters that I have met, sent to jail and had the opportunity to meet over the years. Let’s take a look at some of these human characteristics and perhaps reflect on a good Armstrong too.

Definition of Fraud:

The Intentional misrepresentation of the facts with the intent of getting a person or organization to do what they would not do if they knew the facts.

There is a hidden component that might be there at the start of your lending contract, but it can also happen after the loan is made so as to improve the appearance of collateral, financial conditions and overall operations. Some might say “smoke and mirrors” and others would say a “house of cards being built,” but the truth is hidden at some point and there is usually a financial component of gain when loans are involved.

They will Beat You Up – Lance Strong-Arm:

The borrower will come after you for questioning them.  They might “beat you up:”

“You don’t trust me, even after everything that I just told you.”

“You better be careful what you say to me, I don’t like your attitude or line of questioning.”

“Did you just start auditing? I explained this to the last auditor that was here.”

“Who’s your boss, I want to call them right now!”

“Our lawyers are salivating over this because you’re wrong and once you stop funding us it is not going to be pretty.”

It looks like Lance is no different than so many Borrowers that I have met in the past 27+ years. What’s going on? It is a defense mechanism to react to you getting close to the truth. You must be onto something, they are trying to strong-arm you and push you away. Will you have the stomach to stay or will you back off?

Type-A?  Competitive?  Win at All costs?

Some people are born competitors and some are keenly competitive or even predatory in nature. I think we all know people like that, but what is the motivation behind the lies, the deception, the “at all costs” attitude that create fraud. This is just some of it, but consider things like:

  • The Responsibility to Open the Doors – The owner has employees that have cars, houses, kids in college. The responsibility to open the doors is huge and can weigh heavily on the owner to “make it work.”
  • The Lifestyle – Back in the 80’s a young man named William (Bill) Stoecker (Graybill Corporation) borrowed money to live a wild lifestyle that included huge homes with artwork and lots of toys to impress the Lenders. It was all a pyramid of loans and it came crashing down on him, the 10th largest accounting firm in the USA and the lenders. See the story here: 60 Minutes – The Whiz Kid.
  • The Shame to The Family – Just look at Bernie Madoff. He lived large and he had quite a bit of notoriety before infamy. He lost family members over his Ponzi scheme.
  • I Built it Dam It! – This is what I call the “trophy.” If you have ever won a trophy for best of show or for sports or competition, it is a prize that ONLY YOU appreciate. Companies become the prize and that ownership is more than a name, bricks and mortar and employees, it is untold hard work, luck and personal sacrifice followed by personal pride. That pride can be like a poison in a worse-case scenario.
  • I Just Need to get Ahead for a While – This is the order that saves the day, the customer that comes from nowhere to make it all right again. The fake customer or the pre-billed customer that gives them just enough availability in the Borrowing Base to make it work until the real order arrives or ships. But they stay behind, other emergencies consume the cash and they need to repeat the lie longer. This of course leads to more lies, more willful misconduct and ultimately more fraudulent representations of the collateral.

Armstrong’s take on the above?
– His responsibility to the sponsors and his team;
– He made millions and owns properties in places like Colorado and Spain
– His own reputation and his 5 children now face public reaction
– He won 7 Tour De France victories by building upon his deception and name (that also let him pick some of the best riders in the world to help his team)
– He doped to “level the playing field” because all the top riders were doing it too.

The Two Sides to Armstrong and the Borrower:

Armstrong did good, a lot of good. His cancer awareness program has no doubt helped save many-many lives. His winning attitude and words were sincere. His hard work was real. Companies have mission statements, a purpose and in many ways they enrich the lives of the workers (houses, cars, college tuition, vacations, Etc.). A typical entrepreneur has a purpose and they contribute something to the world.

But survival instincts can outweigh moral beliefs and the need to survive can include the need to lie and fabricate. Those comments noted above like “Who’s your boss, I want to call them right now!” are part of that “other side” where barking like a dog scares away the timid while seeking to preserve the lies a while longer, fighting to survive, to perpetuate the lie for another day. Sure some good is done along the way, but some get hurt too.

Who Really Gets Hurt?:

I remember a borrower saying that “It was in the bank’s best interest that we did this.” I can see that paying payroll and not shutting down over a minor shortfall of cash would seem to be justified, but why not go to the lender and plead the case to create a structured over-advance?

Armstrong made millions in prize money and endorsements. Those companies got good advertising while selling quality products. Armstrong used very good gear and endorsed good companies. But Armstrong trashed the reputation of anyone that challenged his “dope free” stance and that personal defamation of character is not only mean, it is a horrible thing to do to a person’s reputation. While Floyd Landis (Won the Tour De France but was disqualified for using synthetic Testosterone) ruined his own reputation, his suite against Armstrong is also a bit insane when you consider that he has already ruined his own reputation. But others were just trying to bear witness to the rule violations and they had their personal reputations ruined.

Banks do sometimes get sued for lender liability and they often get dragged through the mud in scandals (look at the European Libor scandal that just happened, those lenders did it to themselves).  But lender liability can be managed with proper notification and written documentation that is signed (typically a “forbearance agreement”).

Consumers, corporations, endowments, unions, mutual funds, pensions and more will end up paying the bill from higher fees and other revenue enhancements needed to revive earnings after fraud losses. A write-off of just $1.00 of equity in a bank earning 2% will cause a need to book $50.00 of new earning investments.  That’s why fees are an asset-free way of replacing losses. But we pay those higher fees.

A Tale of Four Armstrongs:

Before concluding this Blog, I want to talk about four Armstrongs and only one is now infamous.

The Good Lance Armstrong – The Livestrong cancer charity organization saves and will continue to save lives. It fits Lance’s personality to get the message out loud and proud. Lance ran Livestrong and raised over $500 million dollars during his tenure. That leadership may help him to run another successful and well-motivated company in the future. Would you lend to a fraudster? Some will.

The Bad Lance Armstrong – He doped, he broke the rules, he lied about it and he ruined people’s lives over it. I know a few borrowers that have done most of that too, but not to the level of character assassination that Lance has done.

Neil Armstrong – The Astronaut – Talk about wild luck, Buzz Aldrin was the Commander of Apollo 11 and should have been the first to walk on the moon, but they designed the capsule with the hatch on the wrong side (one story).  Another version of the story says that they needed a humble man to fill the shoes of a legend in the making and the hatch was placed on Neil’s side on purpose. Thus Neil Armstrong became the first man to walk on the moon.  A legend-hero status that this engineer-aviator did not want, but he because the voice and face of that era.

Neil Armstrong – The Man – He passed away in August of 2012, but he lived a quiet life, rather than that of a man on the talking circuit or even the legend from 1969. He went on to teach at the Department of Aerospace Engineering at the University of Cincinnati and “Professor” was a title that he could accept. He was extremely quiet about his personal life and it has been said that after uttering “One small step for man..” that there really wasn’t much more to say. He was often described as “a reluctant hero.” He was one of mine.

Conclusion to This Behavior:

How do you want to be known? How would you like to be remembered? Why? Those are easy questions, but look what infamy will do to the answers. My advice to any borrower that is in trouble is that you need to go to the lender and plead your case. We’re not gods or rock stars, but we want to help people realize their dreams and we can often help you find the right way to make that happen and furher build your business into a legend. ABLTrain Icon


Copyright © 2013 Clear Choice Seminars, Inc.  All Rights Reserved

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Have You Hugged Your Receivable Aging Lately?

Receivable Ledgers BBC

Borrowers put all sorts of things in their agings. Overpayments, invoices, finance charges, debit memos, adjustments, freight adjustments, tax adjustments, Etc.  All of that works great, it sits there and it looks to be a mess at times, but at least it is all there. But are the offsets all there?

Like a Teenager:

If you have ever tried to raise a teenager, they find the sneakiest ways to get that phone or MP3 player while they are supposed to be sleeping or they sneak cookies into their rooms. I think that Borrowers sometimes behave that way too. We Asset Based Lenders do some due diligence like audits and we have reporting requirements too.  Borrower can observe the systematic flaws in our work a learn to avoid some of our behavior in the future.  They can sneak those ineligible adjustment items out of the aging.

My favorite is probably unapplied cash (that includes overpayments). These items should reduce the AR balance. Some of the credits are over 90 and some are under 90 on your Borrowing Base Certificate (BBC).  But they reduce the collateral and maybe the Borrower sees that as “bad” for the BBC collateral amounts?

Sooooooooo, they might reclassify these items into an “Accrued Liability” account labeled as “Accrued Deposits” or maybe they call it something similar or obtuse like “Deferred Revenues.”  But now it’s not in the aging. Is that bad?

Where Did The Offsets Go?:

The teenager (OK Borrower) took them from the aging and reclassified these things to some accrued liability account.  “They were there a minute ago, I saw them in the aging last month.”  Hmmmmmm?

Accounting Mumbo-Jumbo:

There are some accounting principles to consider here, but only one rings true:

The All Inclusive Principle – This was related to income and that it was better to include all income items on the financials. Taken to receivables, then all of the adjustments to revenues would also hit receivables (credit revenues and debit receivables to book the sale, do the opposite for reversals). This idea is a stretch to apply to receivables, but it has a little bit of merit to at least think about.

Liabilities – They are owed and can be booked when incurred.  We have an overpayment or a deposit, so that must be a liability to perform a future service or deliver a product in the future right?  Accountants are not supposed to offset liabilities and assets, they should be separate like the popcorn in those giant Christmas tins right? Cool thinking, but not exactly true because….

Substance Over Form – This is one of the Grand Daddy statements in accounting.  A unifying concept, the “Prime Directive” of accounting for you Trekkies.  This one trumps the above. The “substance” of overpayments and deposits is that they will go against receivables. So while they could be considered as liabilities in “form,” they are really related to receivables in “substance.”  See, you can bang a liability against an asset and take the net in this case because Substance trumps form.  Also note that this is generally accepted accounting practice in the real world because people account for this stuff in the AR accounts and the AR module of the accounting systems.

So Can You Hug Your Aging?

If accounts receivable were my collateral and on my BBC, I would want to have 100% of the receivable transactions in the aging report.  I would want to see all of the transactions that are right, wrong or indifferent in nature.  I would want substance over form.  I would want to hug my aging and know that it contains all of the transactions and that the potential offsets are in there for me to see.

But what about when the teenagers play games and reclassify things?  How do you find that? How do you prevent that?  What games can be played with potential offsets?  That’s what experience and training are for, to help you cover your assets.  ABLTrain Icon

Copyright © 2013 Clear Choice Seminars, Inc.  All Rights Reserved

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