Working Capital Finance (also known as, factoring or Supply Chain Finance) enables Capital City Bank to purchase and manage the accounts receivables of credit-worthy clients, typically on a full recourse basis, with the client's recourse obligation supported by a reserve account. A Notice of Assignment is sent to all account debtors. Remittances from the account debtors are directed to a bank-controlled lock-box. Capital City Bank (CCB) tracks and manages the receivables within its Working Capital Finance software. 

The program is marketed primarily to small and medium-sized businesses of average credit quality. In certain credit situations, however, the program may be used defensively to enhance Capital City's credit control over relationships already identified as problems. 

Capital City's income from the program arises primarily from the service charge, a discount rate generally 1% to 3%, which is discounted from each receivable upon purchase. At purchase Capital City Bank typically, holds 10% of invoice amount in the reserve account until the invoice is paid. The bank can adjust the discount rate and the reserve amounts, depending on perceived risk, to mitigate or prevent loss. The bank may also change the discount rates and reserve amount for certain industries to be in line with market pricing. 

Periodic reconciliations are completed for each account. The client will receive the held retainage for any invoices that have been paid prior to the EOP. Invoices over 90 days old are typically charged-back  to the client reserve account during the EOP review process. 

All potential Working Capital Finance (WCF) client facilities are processed in accordance with the credit policies established by the CCB Credit Administration Department. All facility requests must be in writing and itemized in a credit memorandum including:

• Facility amount requested
• Type of service charge
• Type of collateral

The guidelines for the factoring program are:

• A company will typically have a minimum debt coverage ratio (DCR) of 1:1
• The owner's beacon score will typically be 630 or higher, but can be lower if mitigating actions are taken

All facility approvals are approved by Credit Administration and/or Working Capital Management. Once approved, the Working Capital Finance Team completes the setup checklist and the Working Capital Finance Operations Booking Sheet. WCF team will pull terms of the approval from the loan origination system. 

For each Working Capital Finance client, Capital City Bank establishes a maximum credit facility limiting the amount of purchases receivables outstanding at any one time. For a facility increase, written approval from the Working Capital Finance Management of Credit Administration is required. The WCF Team Relationship managers have limited discretion to increase a line by a maximum amount of 25% of the original line amount or $25,000 whichever is less. The discretionary limit is intended to be temporary in nature to offset an unexpected surge in a client's business cycle. All activity that exceeds the limits must be documented for audit and control purposes. If a client exceeds their original line limit over a period of 30 business days, the audit team must report the exception on the 30th day to Credit Administration. If a client exceeds their original line limit by 25% three times within 30 business days the 3rd overage will trigger an investigation from the WCF Operations Manager to determine if a request for an increase in the line limit is warranted. If a line increase is needed, financial documentation will be requested from the client and upon receipt of the documents a credit memo will be presented to WCF Management and Credit Administration within 10 business days. If it is determined that no line increase is needed no further over limit request's will be approved. Because of the client's recourse obligation, the Working Capital Finance facility will be aggregated with all other obligations owed by the client to Capital City Bank to determine the appropriate credit approval authority and for legal limit purposes. All Working Capital Finance facilities must be loaded and recorded to the bank's mainframe application for tracking and audit purposes. 

All lines greater than $500M will be reviewed by Credit Administration annually and then sent to WCF Management or final review of pricing, reserve amount and account debtor restrictions. 

Once approval is granted and the client accepts terms, a Uniform Commercial Code (UCC) search on the client will be conducted before funding to confirm no pre-existing liens are in place. The third party or a signed affidavit from the client must be received stating the lien or liens have been released prior to funding. All clients must sign a contract (corporate and personal signatures required) giving CCB clear ownership of their receivables (current and future). The Working Capital Finance Agreement will further protect CCB’s interest. A UCC-1 will be recorded in order to put all other creditors on notice within the State where the client resides or is organized that CCB has a first lien position with respect to our client’s account receivables. 

The client will be responsible for the fees associated with the Working Capital Finance Line including:

• A UCC search fee in the state where the client resides or the state of jurisdiction of organization for a Registered Organization. 
• A UCC filing fee in the state where the client resides or the state of jurisdiction of organization for a Registered Organization. 
• A follow-up UCC search to verify lien perfection, if needed. 
• Cost of mailing Notice of Assignment to all account debtors. 

All fees must be paid by the client the day of closing or deducted from the initial funding proceeds. The Sales Representative will have the discretion to waive any fees associated with the program (within his or her authority) in order to retain the business.

CCB may purchase certain governmental receivables, if the client selling the receivable has a documented history of performance with the government. Additional research must be performed before Government receivables are approved. Construction related receivables will only be purchased on a case by case basis, but will typically be ineligible.

See iLIEN - Submit and Search UCCs for additional details.

The initial funding can only be activated once the appropriate bank approvals have been obtained and all necessary contracts, notice of assignments, and Uniform Commercial Code (UCC) documents have been signed and properly recorded. Accounts receivables purchased which have invoices dated over 60 days at the time of purchase are discouraged. It will be at the discretion of WCF Management to purchase any account receivables that have invoices dated over 60 days in the initial funding. No account receivables will be purchased from the client that are identified by CCB as a “contras” account, or receivables from affiliated companies, officers of the company, employees of the company, or foreign accounts. If any account receivable is found to be one of the above mentioned accounts after it was purchased from the client by CCB, the account will be “charged back” to any of the client’s accounts held by CCB. All such purchases and transactions must be brought to the attention of WCF Management for further investigation.

For each client, CCB maintains a reserve account or escrow in an amount sufficient to provide for reasonable cushion against deterioration of the receivables and for charge back of non-performing receivables against the reserve account. By contractual agreement with the client, the amount of this collateral reserve can be adjusted at CCB’s discretion. All reserve accounts must be reviewed quarterly, and the supervisor must verify the approval of all reviewed accounts. These duties are currently performed by the Auditor/Supervisor and Operations Manager.

Remittance letters or stamped invoices are sent from Working Capital clients to their customers detailing payment instructions to the Capital City lock box address.

Confirmation letters (verbal, e-mail, or fax) of invoices will be completed before the initial funding on a minimum of 50% of the initial dollar amount funded. Depending on the type and amount of each invoice, the Operations team will determine which accounts to audit in the initial funding process. Level of invoice verification is a credit risk that must be determined by the WCF Team according to the type of business receivables purchased. The WCF Team will investigate all confirmations before the initial funding that cannot be confirmed orally, by e-mail, or by fax. It will be at the supervisor’s discretion to purchase any receivable that cannot be confirmed; yet the auditor or supervisor must document any disparities. All confirmations will be documented and filed for audit purposes in a centrally accessible location such as the Cadence platform. The initial funding does not have to commence the day of contract closing.

Normally, all invoices will be submitted to CCB through the client web portal. CCB will purchase the client’s submitted invoices at CCB’s discretion within the client’s limit. Invoices must be submitted by 2 p.m. for normal, same day purchasing.

All Working Capital Finance lines will be monitored to ensure ongoing credit quality in the Working Capital Finance portfolio. In addition to analysis of periodic financial statements, monitoring activities will include, but will not be limited to, the following techniques:

• Regular communication between all associates and the supervisor.
• Supervisor will sign-off on the month-end Daily Client Balance Sheet. 
• Monthly analysis of the adequacy of funds in collateral reserve accounts, and monthly reconciliation of all clients' reserve accounts.
• Monthly monitoring of all charges back and credit memos.
• Monthly monitoring of remittance payments to the bank's lock box.
• Monthly monitoring of invoices that are an unusual size for the business.
• Ongoing review of client's demand deposit account (DDA).

The supervisor will meet with the department associates on a regular basis in order to mitigate any potential risk associated with purchasing account receivables from all Working Capital Finance clients. 

The Working Capital Finance Department will operate within the guidelines of the policies and procedures approved by management, issues and concerns not covered by the policies and procedures will be decided at the Management’s discretion. 

The supervisor must sign-off on the end of month Daily Client Balance Sheet in order to maintain and monitor all Working Capital Finance lines. All over the limit purchases (within the authority of the supervisor) must be noted and documented. 

The adequacy of the ongoing reserve percentage and of amounts maintained in the collateral reserve must be monitored, analyzed, reconciled and documented on a monthly basis. 

All clients’ debtors, who have two charge backs within a 6-month period, may be classified as a Restricted Customer. If a debt is believed to be a Restricted Customer, WCF will report the findings to the WCF Management and, if deemed to have greater than normal concern, WCF Operations will notify Credit Administration. Auditor or management will review any client’s customer that falls into this category and make the appropriate recommendation. Management will have the discretion to authorize future invoice purchase from restricted customers only after a thorough investigation with the client. 

Monthly, Working Capital Finance associates will randomly select customers from an existing client A/R aging report representing the EOP/Reserve Analysis date and select at random 25% of the outstanding dollar amount to audit. The auditor will confirm that the invoice number and dollar amount mirror the banks records and that the service has been rendered and/or merchandise has been received. Audits may be conducted by telephone, email or client portal. Discrepancies discovered during an audit will be brought to the attention of the supervisor immediately for resolution. It will be at the supervisor’s discretion as to how to handle the discrepancies, yet all discrepancies must be documented and filed in the clients audit file. 

The Operations team must document and maintain a log of all remittance payments from the bank’s lock box and all payments received from all clients each month. If the bank does not receive a minimum of seventy percent of all payments through the banks lock box then the department must send out remittance letters to all customers whose payments still pass through the client. If a client does not increase the remittance to the required minimum amount within a period of 60 days or by the end of their third Reserve analysis cycle, or earlier if determined by management, then Management has the option to freeze the client’s Working Capital Finance line. The bank will have at its option to declare the contracts in default and terminate the agreement or allow the client to bring the deficiency in line with the contract requirement. 

An Operations associate will report to Management any and all unusual activity that is out of the norm for any one particular business. As circumstances dictate, these monitoring policies may be waived, adjusted supplemented, and amended with prior written approval of the WCF Management or Credit Administration.

An associate in the WCF department will reconcile the Working Capital Finance general ledger account daily by comparing the daily balance sheet in Cadence with the Working Capital Finance General Ledger account in Jack Henry. The auditor and supervisor will review both documents to verify that the Working Capital Finance general ledger account is in balance. Account Certification Forms are sent electronically to Financial Accounting twice each quarter. The Certification sent at the end of each quarter includes an Account Reconciliation Attest Form which is approved by the Department Manager or their direct supervisor. This certification is forwarded to Financial Accounting in electronic format. 

The auditors and management will meet periodically to discuss the progress of the Working Capital Finance Department.

Supply Chain Finance (SCF) is a product Capital City Bank (CCB) is offering commercial and corporate clients, subject to underwriting, to help our clients manage their cash flow consistency. This product is often referred to as reverse factoring. WCF will manage the SCF program because of the similarities to factoring.

Supply Chain Finance gives our client, the Buyer, the ability to extend their payment terms, while giving their client, the Supplier the ability to receive immediate payment. The early payment to the suppliers will be paid, minus a discount based on the time until the bank will be reimbursed by the Buyer. In some circumstances the Buyer can subsidize the Supplier’s discount fee, but the fee will typically be ducted from the Supplier’s payment. 

CCB will run the SFC program through an online portal. The supplier will upload their invoices to an online invoice management system. The Supplier will have the option to accept the payment term from the Buyer, or they can request an early payment from CCB. Once the Supplier requests an early payment, the Buyer will review the invoice and approve or decline the invoice.

If the Buyer approves the invoice, and the buyer has availability under their SCF facility, CCB will fund the Suppliers invoice. 

Once the invoice is funded, an ACH will be scheduled to pull the payment from the buyers account on the agreed date. If the money isn’t available in the buyer’s account on the agreed date. CCB will typically have trade insurance, with predetermined limits per client, to cover the Buyer’s payment in the event there is a payment default. 

During the first year of implementation all SCF approvals will require a review and approval by WCF’s management. If the request is above WCF’s management’s authority, WCF will seek a concurring approval from Credit Administration, or a voting member of CCB’s credit committee.

Companies eligible for SCF facilities will typically have minimum annual revenue of $3.5M. The companies will typically be required to have been in business a minimum of 3 years with accounts payables averaging over $35K per month. 

SCF clients can have a senior credit facility in place, but their usage of the credit facility shouldn’t exceed 70% over the past 12 months. If the SFC client has a revolving credit facility, any covenant default over the past 12 months will typically make the client ineligible for a SCF facility. Self-funding clients without a credit facility are eligible for SCF facilities subject to CCB’s underwriting. CCB will typically require monthly or quarterly financials, annual facility reviews, and self-reporting of any covenant defaults. 

CCB’s SCF program will typically require facility covenants to protect CCB from losses and minimize claims against CCB’s credit insurance policy. SCF clients will typically have a minimum DSCR of 1.5X. The SCF client will typically be required to maintain a Debt to Tangible Net Worth of debt / shareholder’s equity= <1. 

SCF clients, in most cases, will be required to provide CCB with monthly AR, AP, Interim Balance sheet, Income Statement. Quarterly compliance documents will be completed by the SCF client to insure the covenants are being met.

The Operations Administrator and/or Auditor/Supervisor must monitor and control access to the Working Capital Finance software. The Working Capital Finance Department must store all the department’s original contracts in the vault located in the main lobby of the building for security and disaster recovery compliance. 

A scanned copy will also be saved to the department’s server.