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CIT: Where Factoring Clients Will Go

July 27, 2009
CIT has 1 million customers that rely on their Factoring services. CIT works with clients that other banks find too small and risky to deal with.

CIT has 1 million customers that rely on their Factoring services. CIT works with clients that other banks find too small and risky to deal with.

With CIT’s looming insolvency, their 1 million factoring clients are going to be left on a lurch if they don’t find another place to take their business sooner rather than later. In this article, Bloomberg points toRosenthal & Rosenthal, the largest privately held U.S. factoring company, and Sterling Bancorp. Sterling has annual factoring volume of almost $1 billion after the April acquisition of DCD Capital LLC, a New York-based factoring firm focused on Asian markets.

These alternatives to CIT will not work for a number of CIT’s smaller, more risky clients.

Rosenthal’s target clients are “any company doing a couple million dollars up to a couple hundred million selling into JC Penney, Kohl’s, Target or others,” Peter Rosenthal said. “We try to sell that we’re privately held and we can offer a level of service that we hope is superior.”

The article also does a good job of explaining Factoring:

Factors typically release 80 percent to 85 percent of the value of an invoice to its client, then charge 3 or 4 percentage points above the prime interest rate until the invoice is paid, said Stewart Chesters, CEO for North America in Chicago at Bibby Financial Services, a U.K.-based company. A 1 percent fee for collections and credit services is customary, he said.

Lending against receivables currently provides cash more reliably than bank loans that rely on inventory or equipment, Chesters said. That’s because the recession cut resale prices for assets such as machinery, leaving less value to secure loans, he said.

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