Advanced Payment Program Overview

Program Sponsor

CIT is the finance company sponsoring this new program. They are the largest and one of the most experienced organizations in the factor industry. CIT has been owned since early 2022 by First Citizens Bank, which is headquartered in North Carolina and is now the country's 13th largest bank. Due to this acquisition, CIT is much better positioned than any of its competitors in their space to embark upon and support a program of this potential magnitude in the staffing industry.

Five Reasons for the Program

• This program has been created to remedy a systemic business model issue that has always existed in the MSP staffing industry. We firmly believe this solution is now more important for the marketplace than in recent years, because of the credit and interest rate environment we're in currently.

• A staffing company placing their employees through an MSP arrangement has to typically finance their operations internally. Most commonly they must do so by obtaining lines of credit through third party lenders to provide them with the necessary cash flow for payroll payment purposes, before they can collect on those related accounts receivables(AR). 

• The systemic issue in this case is that the AR isn't eligible to be factored by the staffing company providing the labor, because it's typically owned by the MSP. 

• The longer the payment terms are from the client, the greater the amount of payroll is required to be financed by the staffing company. An increasing trend is for clients to want to extend payment terms for as long as possible.

• For these multiple compelling reasons, the program is being made available to provide a timely and more effective overall financial structure for the staffing industry. 

8 Program Highlights

• Under our configuration CIT provides financing directly to the MSP, which can then pay its participating suppliers before the MSP is paid by the client. With this model, CIT's underwriting relies heavily on the stronger credit worthiness of the MSP's qualified client base. 

• The MSP is essentially selling the eligible AR to CIT, thereby transferring the ultimate collection risk to the financial institution. This is structured as a non-recourse transaction for the MSP. 

• This situation is different than CIT's standard factor practice in several other industries, which it has specialized in for many decades. They have rarely even seen this type of structure where there is a strong intermediary company in place like an MSP, working primarily with larger clients and many vendors of various sizes. 

• CIT would normally have to underwrite the intermediary enterprise and all of the individual provider companies. They would then charge those separate clients a range of fees, according to their respective financial positions. 

• In our design, the MSP is CIT's only client. At its own discretion, the MSP can make a financing spread between the lower rate it would be  charged by CIT versus the higher market competitive rate it would use to discount the advance payment to the participating suppliers. The discount rate should be as good, if not better than, the supplier would get from their own lenders. (see the attached MSP Sponsored Advance Payment Program). 

• The MSP can rather seamlessly turn this interest rate arbitrage opportunity into a substantial profit center. Simultaneously, their staffing company suppliers can also greatly benefit in using this efficient turnkey system. 

• It allows for automatic funding to a participating supplier working on a qualified client. It effectively eliminates the need to secure their company's own borrowing facilities for this specific purpose. 

• By opting into the MSP's advance payment program, suppliers wouldn't have to tie up their own resources to finance and guarantee the collection of this classification of receivables. This structure provides a win/win scenario for all the stakeholders involved with that particular client. (see the attached Sample Supplier Communication).