CIT Commercial Services’ Factoring Helping Grow Consumer Products Industries

As originally published in WWD on Nov. 12, 2024: https://wwd.com/business-news/business-features/cit-commercial-services-factoring-financial-solutions-1236709219/

With its robust factoring product tailored to fit clients' needs, CIT Commercial Services is helping businesses with their capital flow to stimulate growth.

When CIT Commercial Services became a division of First Citizens Bank three years ago, the merger added a range of financial options - especially with its expertise in factoring. Since then, the commercial banking solutions company has continued to be a leader in its financial solutions for middle-market companies.

Within its vast array of commercial banking products, CIT Commercial Services is providing its clientele with dynamic solutions for working capital needs and stimulating growth. Within the fashion industry, CIT has maintained long-standing, often decades-long relationships with the top brands and executives.

Factoring is one of the major products and a core part of CIT Commercial Services financial solutions. In essence, accounts receivable factoring is a financial tool to improve cash flow, improve collections and avoid bad debts. The factoring CIT Commercial Services provides allows clients to have working capital to run businesses.

After a business sells its products to its customers, CIT Commercial Services buys its receivables and then pays what the business is owed within a reasonable period so the business can continue to make goods and pay employees. CIT Commercial Services also has a robust international factoring team to help its clients do business overseas and is a rapidly growing part of the company. Notably, the company can tailor its services to meet each individual client's needs.

Fairchild Studio sat down with CIT Commercial Services executives Mike Hudgens and Amna Mahmood to discuss factoring, the impact of the Federal Reserve lowering interest rates, its reach within the consumer product sector, the 2024 holiday spending forecast and more.

Fairchild Studio: Tell us more about First Citizens Bank's factoring product. What is it and how does it work?

CIT Commercial Services: First Citizens Bank acquired the CIT Commercial Services factoring business less than three years ago when it merged with the former CIT Group. For more than a century, CIT Commercial Services has been one of the largest and most successful factoring companies in the nation.

Our factoring product is a collection of back office and financial tools and clients can elect to use some or all of them. For many clients, we become their credit department, helping manage their cash flow, collecting their accounts receivable, protecting them from bad debts and providing extra working capital when needed. Our factoring, accounts receivable and credit services offer incredible value for manufacturers, wholesalers and importers alike. We lend mainly against accounts receivable and inventory collateral and sometimes against appraised trademarks.

We feature strong teams and long expertise in all our regional locations. Our Northeast region, headquartered out of New York City, and the West region, headquartered in Los Angeles, are focused on two of the world's great fashion centers. Our Southeast region, headquartered in Charlotte, North Carolina, specializes in furniture and home furnishings, as well as significant footwear and apparel centers in Texas and Florida.

It's also important to note that our services don't stop at the water's edge or the international border. Our International Factoring business supports clients doing business in numerous overseas markets as well. International factoring is a highly important and fast-growing segment within our business. Our expert bankers know all these markets in detail and are well positioned to assist clients with their financial needs now and in the future.

Fairchild Studio: How is the market for factoring and working capital changing as the Federal Reserve continues to lower interest rates?

C.C.S.: No industry has been untouched by the burst of inflation that has afflicted the U.S. economy in recent years - and that includes fashion and footwear. It is a great relief to see prices rising much more slowly, the Federal Reserve beginning to reduce interest rates and the U.S. economy poised for continued growth.

We are hopeful that the market for factoring and working capital financing will expand as interest rates continue to decline. Reduced inflation and lower rates will stimulate consumer demand, which means our clients may need more financing. We're also looking to grow our business organically by introducing more services to existing clients and by reaching more prospects with information about how our factoring and working capital can help them grow their own businesses.

Fairchild Studio: What has changed since CIT Commercial Services merged with First Citizens Bank three years ago and what financing options were added to its portfolio?

C.C.S.: The greatest impact on our business from the merger with First Citizens Bank has been the strength, stability and long-term thinking that has long been a hallmark of First Citizens Bank - which was founded more than 125 years ago. First Citizens Bank today is a top 20 U.S. bank with well over $200 billion in assets, which testifies to its success, strength and stability.

First Citizens has always prided itself on establishing and maintaining long-term client-focused relationships. It's a great fit for CIT Commercial Services, which takes a very similar approach. As part of a much bigger bank, we can now offer clients access to many more financial services than just those within our business unit.

If a client needs foreign exchange services, capital markets services or wealth management, we have colleagues at our bank who can help. If a client needs a checking account or a real estate loan, our bank can help with that too.

Aided by our strong credit department and systems, we leverage our infrastructure to expand beyond apparel and footwear into many other consumer products as well. Our supply chain finance business within the factoring business has seen a nice uptick since First Citizens Bank took over. We are also in the process of launching a bulk purchase program which is targeted toward larger companies looking to offload leverage and/or create liquidity quickly.

Fairchild Studio: What other industries are you seeing growth opportunities for CIT Commercial Services to serve?

C.C.S.: Factoring is closely associated with fashion and footwear, but companies in many other industry sectors have found value in the cash flow, debt protection, collection support and credit services that we offer.

We have clients in cosmetics, consumer electronics, manufacturing, furniture, housewares, toys, hardware, textiles, home furnishing and many more. Any consumer products company can potentially benefit from our range of financial services.

And any kind of technology product represents a potential growth opportunity. We continue to see an upside in our traditional markets for fashion and footwear, which are constantly evolving. In a strengthening economy, that's a solid opportunity.

As an off-balance sheet source of liquidity, factoring can be an important part of the capital structure for private equity-owned companies - both in the world of fashion, footwear and in any industry.

Fairchild Studio: How does factoring help clients manage and overcome the cash flow issues that are an ever-present challenge within the fashion and footwear industries?

C.C.S.: Fashion and footwear are constantly evolving. Businesses aiming to thrive in the long run need funding to continue to innovate. Rather than have their working capital tied up in unpaid invoices, they can turn to factoring to get paid more quickly, protect themselves against the potential for credit losses and alleviate the cost and effort of collection. Many businesses outsource some support so they can focus on their core competency and our services are a version of that.

In running a business, expenses and payments are constantly flowing in both directions. But rarely do they equally balance at the end of the quarter or the end of a month. We can stand in the middle of that and work with clients to help smooth out the peaks and valleys of their cash flows so that they can worry less about their liquidity and more about the products and expertise they offer.

Similarly, we often provide inventory financing to help clients manage the inventory build that frequently results from seasonal sales trends and long operating cycles.

Fairchild Studio: Beyond financing options, what role does CIT play in helping to monitor the market and advise clients on changes? Why are these insights important to clients?

C.C.S.: We take great pride in providing financial services and in giving our clients the benefit of our deep industry knowledge, long expertise and strong relationships. Because we work with so many different clients, we are uniquely positioned to understand market trends and assess where they are headed. We can offer market insights when clients are making decisions on where to invest in their business.

Over the years, our clients have found immense value in those insights. Once again, they are typically quite busy designing, manufacturing or importing their products in a timely manner. So, our expertise and insights on the retail markets are truly a value-add. What sets CIT Commercial Services apart has always been a unique combination of servicing, communication, experience and expertise.

Fairchild Studio: What is CIT Commercial Services' outlook for the upcoming 2024 holiday season?

C.C.S.: Our views are aligned with those of many industry analysts who foresee modest but solid year-over-year growth in holiday-related spending. We are optimistic that the recent decrease in inflation and interest rates will positively impact consumer sentiments, potentially leading to greater discretionary spending.

Over the last year, we have seen consumers putting more weight on value products as they shop. We're hopeful that improved financial circumstances will allow for more consumer spending that goes beyond necessities, which could make for a strong holiday season.

Our clients have been importing products conservatively and have been focused on carrying lean inventory balances. But more recently, several have noted an increase in orders from the retailers, indicating a cautiously optimistic outlook for the holiday season.

Online shopping will continue to be an integral part of how consumers will make their purchases. It will be interesting to see how online retailers deal with shipping costs and free returns. We expect there will continue to be tightness in this area.

Fairchild Studio: What upcoming trends do you see in the upcoming years and how is First Citizens Bank addressing them?

C.C.S.: Consolidation on both the client and customer side is expected to continue. Companies with strong balance sheets and excess cash flow are looking to make opportunistic acquisitions to grow their business and maximize their returns by better utilizing their funds.

At First Citizens Bank, we can introduce clients looking to exit their business - either because they don't have a successor or because someone will pay them a premium - to our network of clients and industry contacts interested in growing via acquisitions. With First Citizens Bank's support, we can help those buyers with acquisition loans and additional financing.

Many companies are also looking to expand internationally. The talented staff in our International Factoring business can help approve credit in certain foreign jurisdictions and make collection efforts in the local languages. The bank also offers foreign exchange and hedging services, which can ease client concerns as they expand internationally.

In addition, our bank's acquisition last year of Silicon Valley Bank continues to deliver value throughout our organization. Technology is a powerful force in the markets these days. It's great to be able to leverage the expertise of our SVB colleagues, who have unparalleled visibility to emerging technology trends.

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