Meaning of factoring, process, types, factoring companies in India

1. FACTORING

2. WHAT IS FACTORING?
Factoring is an ongoing arrangement between the client
and the factor, where the sales of goods and services
are made on open account terms and the invoices for
the same are assigned to the factor regularly for the
purpose of funding, collection and sales ledger
administration.
Factoring involves a long-term relationship between the
buyer and the seller with the whole turnover being
assigned to the factoring company.
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3. •Came into existence in the year 1920
•It was not an organised sector that time
•Association of British Factoring (ABF)
came in 1976
•Nearly 90% of global factoring turnover
comes from USA and European
countries.
•RBI appointed the C.S.
Kalyanasundaram Committee (1988).
•It suggested to start factoring by a bank
through its subsidiary.
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4. As of today,
✗Worldwide , factoring volume is
more than USD 700 billion a year.
✗Spread over nearly 60 countries
and covering more than 1,00,000
businesses.
✗Particularly in developed countries,
factoring is an accepted way of
conducting business.
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6. Why using Factoring?
✗ Through the use of factoring receivables are
instantly converted into cash leading to
improved cash flows that can help funding
of future growth.
✗ It facilitate an efficient follow up of payments
from buyers, which is made possible
through relationshops developed by factors
with client’s buyers.
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7. Cont..
✗Factoring provides credit protection for export
sales which enables to do business with buyers
who are unwilling to open Letters of Credit.
✗Factoring also provides other peripheral
services such as advisory services , credit
assessment, etc.
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8. TYPES
OF
FACTORING
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9. 1. Domestic factoring
If you are selling in
India.
There are basically two types of
factoring arrangements:
2. International Export
Factoring
If you are exporting
from India.
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10. Other major types..
Recourse
In recourse factoring, client undertakes to
collect the debts from the customer. If the
customer don'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.
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11. Non recourse
✗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.
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12. Disclosed
✗ In disclosed factoring client's
customers are notified of the
factoring agreement. Disclosed type
can either be recourse or non
recourse.
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13. Undisclosed
✗In undisclosed factoring, client'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 whether it is
recourse or non recourse.
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14. How much advance can client
get?
✗Advances are made as a
percentage of invoice value based
on criteria, such as, quality of
receivables, number and quality of
the buyers and client’s requirements.
✗Typically 80% of the invoice value
is advanced.
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15. Factoring companies in India
✗Canbank Factors Limited
✗SBI Global
✗The Hongkong and Shanghai Banking
Corporation Ltd
✗IFCI Factors Limited
✗Export Credit Guarantee Corporation of
India Ltd
✗Citibank NA, India
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16. Cont...
✗Small Industries Development Bank of
India (SIDBI)
✗Standard Chartered Bank
✗YES BANK Limited
✗India Factoring and Finance Solutions Pvt
Ltd
✗DBS
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Presented by: AMMU KRISHNA