{"id":94,"date":"2018-12-28T17:23:32","date_gmt":"2018-12-28T17:23:32","guid":{"rendered":"http:\/\/www.howtoexcel.info\/New\/?p=94"},"modified":"2022-11-04T08:32:00","modified_gmt":"2022-11-04T08:32:00","slug":"factoring_india","status":"publish","type":"post","link":"https:\/\/www.howtoexcel.info\/New\/factoring_india\/","title":{"rendered":"Factoring in India"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong><b>What is factoring?<\/b><\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a company (client) and pays up to 80% (rarely up to 90%) of the amount immediately on agreement. Factoring company pays the remaining amount (balance 20%<span lang=\"en-gb\"> minus <\/span>finance cost<span lang=\"en-gb\"> minus <\/span>operating cost) to the client when the customer pays the debt. Collection of debt from the customer is done either by the factor or the client depending upon the type of factoring. We will see different types of factoring in this article. The account receivable in factoring can either be for a product or service. Examples are factoring against goods purchased, factoring <span lang=\"en-gb\">in<\/span> construction services (<span lang=\"en-gb\">in <\/span>government contracts<span lang=\"en-gb\"> it is assured that<\/span> the government body <span lang=\"en-gb\">can<\/span> pay back the debt in the stipulated period of factoring<span lang=\"en-gb\"> and hence <\/span>contractors <span lang=\"en-gb\">can <\/span>submit\u00a0<span lang=\"en-gb\">the<\/span> invoice<span lang=\"en-gb\">s<\/span> to get cash instantly), factoring against medical insurance etc. Let&#8217;s see how factoring is done against an invoice of goods purchased.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/www.howtoexcel.info\/Finance\/factoring.gif\" width=\"626\" height=\"402\" border=\"0\" \/><\/span><\/p>\n<p style=\"text-align: center;\"><p><script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\n<!-- Excel-banner -->\n<ins class=\"adsbygoogle\"\n     style=\"display:block\"\n     data-ad-client=\"ca-pub-9915969422261431\"\n     data-ad-slot=\"1165930494\"\n     data-ad-format=\"auto\"\n     data-full-width-responsive=\"true\"><\/ins>\n<script>\n(adsbygoogle = window.adsbygoogle || []).push({});\n<\/script><\/p><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Characteristics of factoring<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Usually the period for factoring is 90 to 150 days. Some factoring companies allow even more than 150 days.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Factoring is considered to be a costly source of finance compared to other sources of short term borrowings.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Bad debts will not be considered for factoring.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Factoring is a method of off balance sheet financing.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring vary from 1.5% to 3% per month depending upon the financial strength of the client&#8217;s customer.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">For delayed payments beyond the approved credit period, penal charge of around 1-2% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards).\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Different types of Factoring<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Disclosed and Undisclosed<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Recourse and Non recourse<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">A single factoring company may not offer all these services.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Disclosed<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">In disclosed factoring client&#8217;s customers are notified of the factoring agreement. Disclosed type can either be recourse or non recourse.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Undisclosed<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">In undisclosed factoring, client&#8217;s customers are not notified of the factoring arrangement. Sales ledger administration and collection of debts are undertaken by the client himself. Client has to pay the amount to the factor irrespective of whether customer has paid or not. But in disclosed type factor may or may not be responsible for the collection of debts depending on\u00a0 whether it is recourse or non recourse.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Recourse factoring<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">In recourse factoring, client undertakes to collect the debts from the customer. If the customer don&#8217;t pay the amount on maturity, factor will recover the amount from the client. This is the most common type of factoring. Recourse factoring is offered at a lower interest rate since the risk by the factor is low. Balance amount is paid to client when the customer pays the factor.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><strong>Non recourse factoring<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">In non recourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first. The advantage of non recourse factoring is that continuous factoring will eliminate the need for credit and collection departments in the organization.<\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><u><strong>Factoring companies in India<\/strong><\/u><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.canbankfactors.com\">Canbank Factors Limited<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.canbankfactors.com\/\">https:\/\/www.canbankfactors.com<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.sbiglobal.in\">SBI Global<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.sbiglobal.in\">https:\/\/www.sbiglobal.in<\/a><\/span><\/span><\/p>\n<p><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.sbiglobal.in\">ICICI Bank<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/infiniteindia.icicibank.com\/?url=factoring\">https:\/\/infiniteindia.icicibank.com\/?url=factoring<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.hsbc.co.in\/1\/2\/corporate\/trade-and-factoring-services\">The Hongkong and Shanghai Banking Corporation Ltd<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.business.hsbc.co.in\/-\/media\/library\/markets-selective\/india\/pdf\/receivable-finance-solutions.pdf\">https:\/\/www.business.hsbc.co.in\/-\/media\/library\/markets-selective\/india\/pdf\/receivable-finance-solutions.pdf<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.ifcifactors.com\">IFCI Factors Limited<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.ifcifactors.com\">https:\/\/www.ifcifactors.com<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.ecgc.in\/Portal\/productnservices\/maturity\/mfactoring.asp\">Export Credit Guarantee Corporation of India Ltd<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/main.ecgc.in\/factoring\/\">https:\/\/main.ecgc.in\/factoring\/<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.online.citibank.co.in\/portal\/newgen\/corporate\/product_services\/trade_finance.htm\">Citibank NA, India<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.online.citibank.co.in\/products-services\/commercial-bank\/trade-finance-services.htm\">https:\/\/www.online.citibank.co.in\/products-services\/commercial-bank\/trade-finance-services.htm<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.sidbi.com\/?q=receivable-finance-scheme\">Small Industries Development Bank of India (SIDBI)<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.sidbi.in\/files\/product\/1.%20Receivable%20Finance%20Scheme%20Final.pdf\">https:\/\/www.sidbi.in\/files\/product\/1.%20Receivable%20Finance%20Scheme%20Final.pdf<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.sc.com\/in\/business-banking-sme\/trade-working-capital.html\">Standard Chartered Bank<\/a>: <a style=\"color: #000000;\" href=\"https:\/\/www.sc.com\/en\/banking\/banking-for-companies\/transaction-banking\/financial-supply-chain\/receivables-financing\/\"><span style=\"color: #0000ff;\">https:\/\/www.sc.com\/en\/banking\/banking-for-companies\/transaction-banking\/financial-supply-chain\/receivables-financing\/<\/span><\/a><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"> <a style=\"color: #000000;\" href=\"https:\/\/www.yesbank.in\/corporate-banking\/products-and-services\/transaction-banking-solutions\/trade-finance-and-services\"> YES BANK Limited<\/a> : <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.yesbank.in\/corporate-banking\/products-and-services\/transaction-banking-solutions\/trade-finance-and-services\"> https:\/\/www.yesbank.in\/corporate-banking\/products-and-services\/transaction-banking-solutions\/trade-finance-and-services<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.indiafactoring.in\"> India Factoring and Finance Solutions Pvt Ltd<\/a>:<span style=\"color: #0000ff;\"> <a style=\"color: #0000ff;\" href=\"https:\/\/www.indiafactoring.in\">https:\/\/www.indiafactoring.in<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/www.dbs.com\/in\/institutional\/financial-institutions\/financing-for-corporates\/factoring\/accounts-receivable-purchase\/faq.aspx\"> DBS<\/a>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.dbs.com\/in\/sme\/trade\/accounts-receivable-purchase\/accounts-receivable-purchase\">https:\/\/www.dbs.com\/in\/sme\/trade\/accounts-receivable-purchase\/accounts-receivable-purchase<\/a><\/span><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><a style=\"color: #000000;\" href=\"https:\/\/fci.nl\/en\/members\/index\"><span style=\"color: #0000ff;\">Click here<\/span><\/a> to contact the <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/fci.nl\">Factors Chain International<\/a><\/span> members from India<\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><u>A study on Factoring services in India(PDF) <\/u><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\">Click <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"http:\/\/masujournal.org\/108\/37IXAxo2xds6nuG4WINpEyUiSLisPp.pdf\">here<\/a><\/span> to read the article about factoring in India and role of reserve bank, role of factoring in Indian SMEs, challenges faced by factoring sector and role of factoring in India as an emerging market.<\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><u>What are the problems faced by factoring industry in India<\/u><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\">Click <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.linkedin.com\/pulse\/what-ails-factoring-services-india-few-ideas-asim-hussain\"> here<\/a> <\/span>to read the article about the status of factoring industry in India and the challenges ahead.<\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\"><u>Growth of Factoring Services in India<\/u><\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"color: #000000;\">Click <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"http:\/\/vinodkothari.com\/2018\/09\/growth-of-factoring-services-in-india\/\"> here<\/a> <\/span>to read the article about the growth of factoring services in India &#8211; An analysis of the current scenario.<\/span><\/p>\n<p><script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\n<!-- Excel-banner -->\n<ins class=\"adsbygoogle\"\n     style=\"display:block\"\n     data-ad-client=\"ca-pub-9915969422261431\"\n     data-ad-slot=\"1165930494\"\n     data-ad-format=\"auto\"\n     data-full-width-responsive=\"true\"><\/ins>\n<script>\n(adsbygoogle = window.adsbygoogle || []).push({});\n<\/script><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000;\"><!--more--><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is factoring? Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a company (client) and pays up to 80% (rarely up to 90%) of the amount immediately on agreement. Factoring &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.howtoexcel.info\/New\/factoring_india\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Factoring in India&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"amp_validity":null,"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/posts\/94"}],"collection":[{"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/comments?post=94"}],"version-history":[{"count":20,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/posts\/94\/revisions"}],"predecessor-version":[{"id":128,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/posts\/94\/revisions\/128"}],"wp:attachment":[{"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/media?parent=94"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/categories?post=94"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.howtoexcel.info\/New\/wp-json\/wp\/v2\/tags?post=94"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}