Sources of Finance- Factoring & Securitization

1. Sources of Finance:
Factoring & Securitization

2. 2
Factoring
Factoring is a financial service in which the
business entity sells its bill receivables to a third
party at a discount in order to raise funds.
Factor is an intermediary agent that provides
cash or financing to companies by purchasing
their accounts receivables.

3. 3
Process

4. 4
Merits & Demerits
Immediate cash inflow
Evasion of bad debts
Speedy
No collateral
Attention towards business
operation
Reduction of profit
Contingent liability
Higher finance charges
Exhausting of collateral security
Reliability of customer’s credit

5. 5
Example
Examples of factoring companies in India:
 SBI Global Factors Ltd.
 Siemens Factoring Pvt Ltd
 India Factoring & Finance Solutions Pvt Ltd
 Siemens Factoring Pvt Ltd
Source - https://rbi.org.in/Scripts/BS_NBFCList.aspx

6. 6
Securitization
Securitization is the process in which
certain types of assets are pooled so that they
can be repackaged into interest-bearing
securities.
The interest and principal payments from the
assets are passed through to the purchasers of
the securities.

7. 7

8. 8
Process

9. 9
Merits & Demerits
Better returns to investor
Grants liquidity
Diversified portfolio
Less credit risk
Overcomes uncertainty of
profit
Expensive
Investor bear risk
Loss in case of prepayment
Complex to handle
Lack of transparency

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11. 11
Example
Securities issued by SBI

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