Factoring Industry Saves The Shopping Season For Retailers
It could have been a not-so happy holiday shopping season for thousands of retailers if factoring giant CIT Group Inc. did not file for Chapter 11 bankruptcy protection last week.
Millions of retailers use factoring to line store shelves — before consumers actually purchase the product. The holiday shopping season is the biggest selling period of the year for most retailers, accounting forÂ as much as 50 percent of their annual sales.
Luckily, most retailers already had their merchandise before the CIT meltdown.
â€œMost retailers have dodged a bullet,â€ said Craig Shearman, a spokesman for the National Retail Federation, told Bloomberg News. â€œMost of the merchandise for the holiday season is at least in retailersâ€™ distribution centers, if not already on the store shelves, and weâ€™re not expecting to see any significant disruption for the remainder of the season.â€
CIT is one of the oldest invoice factoring firms in the world. The 101-year-old company works with thousands of retailers, including well-known brands such as Dunkin’ Brands Inc. and Burlington Coat Factory.
It filed for bankruptcy on Nov. 1 following a severe credit crunch and after borrowing billions from U.S. taxpayers. The company plans a quick reorganization and intends to emerge from bankruptcy protection next month. It had $10 billion in debt.
Just how big is CIT in the factoring industry? It accounted for 70 percent of the $40 billion industry, according to Credit Management Resources in New Jersey.
Operations at CIT, meanwhile,Â have not ceased.Â And retail industry trade groups remain “optimistic” about CIT’s ability to provide short-term financing.Â Meanwhile, retailers such as Target and Nieman Marcus continue to monitor the situation and don’t expect a long-term fallout.
Many think that factoring may have already shifted to Wells Fargo & Co., a home lender that also provides factoring.Â CIT’s problems had been brewing for a long time. In July, it failed to receive federal guaranteesÂ for its bonds. That raised doubts about whether it would be able to provide funding.
In September, it asked bondholders to swap notes for new secured debt or shares.Â It also asked bondholders to approve a reorganization plan.
While I don’t like to highlight bankruptcies, I do think that the bankruptcy is bringing an increased awareness of the factoring industry. IfÂ CIT had stopped lending in September, millions of retailers might have been on the hook for merchandise.
CIT is expected to provide funding to small business and middle-market customers, according to a filing. It has $1 billion from investor Carl Icahn to fund operations during its reorganization.
For more information about how invoice factoring can benefit your business, visit MDS FundingÂ at http://www.MDSFunding.com, contact MDS Funding at 866-394-4637 or email CashFlowConsultants@mdsfunding.com.