Factoring is a form of asset-based lending that combines:

• Credit protection and advice
• Accounts receivable bookkeeping, including EDI invoice and payment processing
• Collections, cash management and lockbox processing
• Accounts receivable financing
  
  

Factoring is an agreement between CIT and your company in which CIT purchases your accounts receivable and, in non-recourse arrangements, assumes responsibility for your customers’ financial inability to pay. If a customer is financially unable to pay, CIT makes payment on undisputed, approved invoices. CIT extends credit to your customers, collects the accounts receivable from your customers and performs the related bookkeeping functions. As needed, CIT may also provide cash advances against open receivables prior to collection.

What factoring services are provided by CIT?

Extend Credit – The Factor:

• Pre-approves lines of credit by customer
• Approves credit and shipment requests electronically
• Provides credit protection on all approved orders

Sell Invoice

• Client ships goods to customer
• Client sells and assigns the invoice to factor
• Client sends original invoice to customer, usually with the notice “payable to factor”
• Factor ledgers the invoice

Post Receivable – The Factor:

• Maintains customer payment records
• Maintains and adjusts balances
  
  
  

Provide Financing – The Factor:

• May provide cash advances to client prior to collection, as needed
  
  
  

Collect Receivables – The Factor:

• Performs aggressive bank clearance through its lockbox
• Collects payment on open balances
• Identifies customer objections to payment
• Follows up on overdue receivables
  
  
  

Apply Cash – The Factor:

• Electronically applies payments
• Marks invoices as paid
• Records detailed transaction information
  
  
  

Remit Collected Funds – The Factor:

• Applies collected funds toward advances provided to client, if needed
• Forwards balance to client
  
  
  

Financial Reporting – The Factor:

• Compiles and forwards dispute and deduction information to client
• Provides detailed financial information online for client access
  
  
  

What are the benefits of factoring loans?

Factoring loans can help companies of all sizes, from start-ups to mature companies:

• Improve cash flow
• Eliminate bad debts
• Reduce operating expenses
• Expand working capital financing
• Improve management information through on-line reports, such as:
• Customer payments
• Accounts receivable agings
• Loan status
• Credit approvals
• Customer credit previews
• Customer deductions and dispute summaries
• Wire transfers

What types of companies can benefit from factoring loans and factoring services?

Companies that can benefit from factoring include those that are:

• Rapidly growing
• Seasonal
• Start-ups
• Undercapitalized
• Spin-offs
• Concerned about adding fixed costs
• Have a lengthy manufacturing cycle
• Strained by slow turnover of receivables
• Hurt by high bad debt losses
• Saddled with a large customer concentration
  
  
  

Why use factoring services?

The services of factoring organizations are in high demand. Many companies are concerned about the creditworthiness of their customers. As such, CIT keeps comprehensive credit files on more than 330,000 customers, so CIT can determine which have the ability to pay for a client’s merchandise. Factoring enables your company to focus its attention on production and sales, rather than collecting receivables. Factoring also provides liquidity and added financial flexibility so your company can pursue opportunities as they arise.

What costs are involved with factoring loans and factoring services?

There are two costs always associated with factoring: the factoring commission and, if applicable, the interest charged on advances against receivables. The factoring commission is quoted as a percentage of factored volume, and is based upon these variables:

• Factored sales volume
• Average invoice size
• Terms of sale
• Number and type of customers
• Ability to transmit and communicate electronically
  
  
  

The interest rate is competitive with short-term revolving credit interest rates. Interest is charged monthly at a rate tied to major interest rate indices, usually with the addition of a margin, based on the average daily amount advanced during that month.

How does factoring work?

This can be best illustrated in the following five steps:

Step 1: When a client enters a factoring relationship with CIT, we customize an order submission procedure for online credit approvals via the client’s computer. We also establish pre-approved credit lines for the client’s customers. Most orders submitted electronically are answered promptly.

Step 2: The client ships the approved orders to its customers and bills them, usually indicating on the invoices that payments are due to CIT.

Step 3: At invoice maturity, CIT collects from the customer and credits the client’s account. CIT fully manages the receivables including the lockbox, cash application and collection of past dues. Customer deductions or disputes over delivery terms or product are immediately reported to the client. CIT maintains the accounts receivable ledgers and provides this information to the client electronically via Internet-reporting capabilities.

Step 4: In the event a customer defaults and is deemed financially unable to pay its debts, CIT pays the client the value of the undisputed, approved invoice.

Step 5: As needed, CIT may provide clients with cash advances prior to the maturity date of the invoices. This allows the client to be paid upon shipment while actually offering credit terms to its customers. Typical advance rates are up to 90% of the value of the invoice. These advances are subsequently repaid by collection proceeds from their customers.