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Factoring for Success ... The Importance of Backing a Winning Business Plan

Date: Jun 17, 2014 @ 07:00 AM
Filed Under: Factoring
Related: Factoring, Retail

Jon Lucas is president of CIT Commercial Services, one of the nation’s largest providers of factoring, credit protection and accounts receivable management services. He has spent his career developing financing solutions for companies in all stages of the business cycle. Prior to his current position, he held various positions including chief sales officer, regional manager and sales manager.

ABL Advisor spent time with Lucas recently to ascertain his view of the dynamics at play in today's commercial services landscape. Here Lucas speaks to a wide range of topics, but notes that above all else, it's always important to back a winning business plan. 

ABL Advisor: What have been the most significant changes in the industry since you began your career?

Photo of Jon Lucas - President - CIT Commercial Services

Jon Lucas: I think the most significant changes have been consolidation in the retail industry and the emergence of online retailing. With fewer retailers, there are fewer customers for manufacturers to sell their products to, which can create issues for them in terms of exposure and having a broader market to sell their products. Of those remaining retailers, some have decided to go direct to where the goods are produced and eliminate the middleman. I have not seen any significant changes (yet) in our clients’ business models on account of e-commerce, but that could change over time.

From a finance perspective, over the years many companies importing/sourcing product from overseas have shifted from using commercial letters of credit to open trade accounts. When I first got into the business, companies were still making goods in the United States. Today there are very few domestic manufacturers remaining.

Improvements in technology have also played an important role in the changing dynamics of the industry. For ourselves, we’ve used technology to create a more efficient lockbox facility and collection system. In addition, the detailed information that we gather for our clients on their receivables portfolio and hundreds of retailers is now more readily available and more easily accessible through our web-based programs.

ABL Advisor: How has factoring in general changed since the Great Recession?

Lucas: Factoring has changed very little over time. However, what has changed is the basis on which a company chooses its factor and lending partner. It’s a highly competitive environment today in which you need to differentiate yourself from the rest of the pack. We’ve managed to do this through our relationships, client service and deep industry knowledge.

When we initiate a loan or other financial support, we want to know that we’re backing a winning business plan. We have invested in teams that know our clients’ industry segments inside and out. Internally, we have very high expectations for each team member involved in any financing decision. They need to know not only the client’s business, but the broader industry trends as well.

This deep knowledge base doesn’t just help our company make better financing decisions – it helps our clients prosper.

And while we are not our clients’ financial advisor in a formal sense, every year we review our clients’ business plans with an eye toward helping them manage their businesses better. We look at their cash-flow projections, the amount of risk they are taking and the degree of diversification in their customer base. We examine their product sourcing strategy and the cost implications of potential sourcing changes. We consider where they are in their business lifecycle and whether they need funds to grow or to maintain their current trajectory.

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