CIT Bankruptcy Filing Highlights Importance of Factoring
News that factoring giant CIT Group Inc. filed for Chapter 11 bankruptcy protection rocked the finance industry, but the fundamentals haven’t changed: FactoringÂ remains a lifeline for mid-to-small businesses around the world.
Account receivables factoring, or invoice factoring, is one of the oldest forms of financing.Â Businesses have used this type of financing for nearly 500 years. It is used by many typesof businesses, including service industries, retailers and health care companies.
A Commerical Finance Association Survey found that asset-based loans totaledÂ $600 billion in 2008, a figure that has grown sharply since the 1970s.
It remains a popular way for businesses to obtain cash — with NO debt and NO banks.Â ItÂ allows businesses to:
- Get working capital quickly
- Relieve stress from no-pay and slow-pay clients
- Fill more orders quicker
- Increase sales with flexible funding
- Take advantage of vendor discounts
- Fund payrollÂ and taxes with less stress
- Extend credit to customers on large orders
- Buy equipment or inventory on demand
Account receivables factoring remains the best way for businesses to get cash quickly. Instead of waiting on clients to pay their invoicesÂ in 30, 60 or 90 days to pay their invoices, factoring gives businesses access to immediate cash — often in as little as 24-48 hours.
While disappointing, the CIT bankruptcy filing really illustrates just how important the factoring industry is to the economy. CIT provided financing for more than 1 million businesses, includingÂ Dunkin’ Brands Inc.Â and Eddie Bauer.
It appears that the credit crunch that has impacted thousands of small businesses also impacted CIT. Funding at the 101-year-old commercial lender recently dryed up, forcing the company to file for bankruptcy to cut $10 billion in debt. The bankruptcy protection filing followedÂ a failed debt exchange and following Â billions in U.S. bailout funds.Â
CIT,Â meanwhile, hopes toÂ emerge from bankrupty quickly.Â It is the fourth-largest corporate bankruptcy filing.