1) Factoring involves a business selling its accounts receivable to a third party called a factor at a discount. It provides businesses with immediate cash flow. 2) Factoring has grown in India at a CAGR of 10.4% from 2009-2014 but still only accounts for 2% of India's GDP, indicating significant potential for further growth. 3) The key challenges to factoring in India are the absence of a strong regulatory framework, high stamp duties, and lack of supportive legal structures. However, regulations are improving with the enforcement of rules like the Factor Bill of 2011.

1. Factoring in India
Factoring Study done by Shannon Rebello – Student at S P Jain School of
Global Management (B.B.A)
July 2016

2. Importance of Factoring
72%
Businesses that suffer due
to insufficient working
capital and later file for
bankruptcy
82%
Business failures
due to poor cash
management
75%
Report which
indicate main
concerns as cash
flows & collecting
payments
2
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts
receivable (i.e., invoices) to a third party (called a factor) at a discount
FACTORING SNAPSHOT
• Construction
• Logistics
• Wholesale and
distribution
• Manufacturing
• Printing and Publishing
• Transport
• Hospitality
• Pharmaceuticals
• Information Technology
• Textiles
• Recruitment
Invoice Factoring WC Bank Loan
No debt to repay Principal & interest repaid
over time
Unlimited funding potential Funding potential is capped
by banks
Fast approval in 3-5 days Approval may take months
Approval based on credit
strength of your clients
Approval based on your
company’s operational and
credit history
Startups are eligible for
factoring
Very tough for startups to
obtain bank funding
Benefits of Factoring Over WC Bank Loan
Source: http://transfac.com/infographic-ar-financing/ (Global Numbers)
Sectors Where Factoring Can Be Useful
Note: WC = Working Capital

3. In international factoring, there are usually two factors. The export factor looks at financing the
exporter and sales administration (presenting invoices at the right time, collecting payments
being the key tasks). The import factor is interested in evaluating the buyer, collecting the
money on time and ensuring that he is protected against default.
1. You Send Invoice to Factor & Supplier
2. Factor Pays 80-95% of Invoice to You
3. Supplier Pays Invoice to Factor
4. Factor Pays Balance (minus fees) To You
TYPES OF FACTORING
You Factor Supplier
A/R financing (or factoring) is tuning a company’s accounts receivables into
immediate cash.
International Factoring is a service which helps the exporter and importer to trade
on open account terms
1. DOMESTIC FACTORING
2. INTERNATIONAL FACTORING
3
1
2
3
4
1

4. 4
FACTORING TRENDS
FCI Global Factoring Statistics 2014 by Region (all figures given in EUR bn)
5,200
2,650 2,750 2,800
3,650
5,240
4,340
0
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Turnover of India ( all figures given in EUR mn)
Factoring Volume–India (In EUR mn)
Source- FCI Annual Review 2015
• In 2014, global factoring surpassed EUR 2.35 trillion in annual volume, an increase of
6% over 2013; whereas Asia is the second largest, accounting for 26%
• Factoring in India has grown at a CAGR of 10.4% in the last five years
India 2014-15
# of Factoring Companies in India 11
Domestic Factoring Turnover 3,500
International Factoring Turnover 840
Total Factoring Turnover 4,340

5. 5
5,200
2,650 2,750 2,800
3,650
5,240
4,340
1,400 1,400
1,650 1,650
1,422
1,060
3,000
2,367
2,107 2,095
3,080
4,339
3,348
4,144
1,860 1,910 2,000
1,750
2,900
3,500
5,020
2008 2009 2010 2011 2012 2013 2014
India Israel Thailand UAE
FACTORING IN EMERGING MARKETS
• While India’s GDP is growing at an
increasing rate of 6-7%; India’s factoring
constitutes 2% to India’s GDP
• India has grown at a CAGR of 10.4%
from 2009 -2014. UAE has grown by
21.3% in the same period
• Note: Indonesia recently (in 2012)
started factoring, and their Factoring
Volume is below 100
Factoring Volume (In EUR mn)

6. 6
OPPORTUNITIES & CHALLENGES
Key Terms
Before
Factoring
After
Factoring
AR Days 107 23
AR balances as % of revenue 31.7% 7%
Cash as % of total expenses 2.9% 8%
Debt
Effective Interest Rate
Bad Debt
Debt Assets Ratio 0.5
Current Ratio 0.8
Revenue Growth(past year) 6.8%
EBITDA Growth(past year) -6.8%
Source: A Study on Factoring by SIDBI
Improved
since
establishment
of CIBIL; RBI
has already
given approval
to 3 new
players
• Absence of regulatory framework
• High stamp duty on factoring.
• Lack of supportive legal
framework– uneven playing
ground with banking system
• Competition from commercial
banks
Mitigated to a
great extent
once Factor
Bill, 2011 was
enforced
For the factoring business to grow, while there are several business environment issues such as lack of awareness amongst clients, slow turn-
around time, there are several regulatory factors that can catalyse the growth of factoring into India.
• Fake bills: Can be covered by the applicability of the
Provision of Negotiable Acts 1981 (punishments and
several penalties possibilities)
• Applicability of SARFAESI: To have faster and easier
asset recovery
OPPORTUNITIES CHALLENGES
• Access to Information on Credit
Worthiness

7. 7
COMPETITIVE LANDSCAPE
Company Year
Founded
H/Q Sectors
Financed
Revenue
(INR mn)
EBITDA
(INR mn)
FIU
(INR mn)
Remarks
Canbank Factors 1991 Bengaluru Manufacturing,
Trading, and
Services
1,120 702 ~8,599 They have the highest rating of "A1+" by CRISIL for its
Short Term Debt Programme
IFCI Factors 1948 New Delhi Manufacturing 1,057 -176 ~8,200 IFCI Factors Limited (erstwhile Foremost Factors Limited)
is a subsidiary of IFCI Limited, which is a leading
financial institution of India.
Bibby Financial
Services
2007 New Delhi Manufacturing 38 -93 ~538 Awarded Best Factor and Discounter 2008 & 2009 at the
National Association of Commercial Finance Brokers
(NACFB) awards ceremony
SBI Global Factors 2001 Mumbai Various
Manufacturing
and services
sectors
990 -279 ~9,201 Formed out of merger of SBI Factors and Global Trade
Finance Ltd. in 2010; they are the market leader of this
segment
India Factoring &
Finance Solutions
2009 Mumbai Manufacturing 792 -1,683 ~6,940 FimBank Plc infused $100mn , acquiring a 79% stake
*Note: FIU = Funds in Use

8. Net sales (INRMn)
EBITDA (INRMn)
FINANCIAL ANALYSIS
8
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI India Factoring
(2,000.00)
(1,500.00)
(1,000.00)
(500.00)
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI IFFS
PAT Margins
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI IFFS
Net Interest Margin (NIM) for the year 14 and 15
8.7%
9.3%
3.4% 3.4%
5.2%
8.0%
2.8% 2.9%
6.5%
1.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY'14 FY'15
Canbank SBI Global Bibby IFCI Factors limited IFFS

9. ROA
Leverage Ratio
ROE
FINANCIAL ANALYSIS (CONTD)
-10%
-5%
0%
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI IFFS
9
-
5.00
10.00
15.00
20.00
25.00
30.00
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI IFFS
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Canbank IFCI Bibby SBI IFFS
10.06%
8.67%
22.62%*
9.89%
3.60%
Canbank IFCI Bibby SBIGFL IFFS
*NPA of Bibby are not available for FY’15; considered for FY’14
Net NPA as Percentage of FIU (FY’15)

10. Conclusion
 The laws pertaining to factorization in India is still in a nascent stage and it is expected that the legal framework for factoring will
evolve into a more comprehensive regime.
 Since the notification of the Factoring Act, there has been a steady increase in the number of domestic and cross border factoring
transactions and corporations in need of short term financing are resorting to factoring to meet their financial needs.
 The Factoring Act has laid the basic legal framework for factoring in India and it is expected that the RBI will introduce further
regulations in this regard as factoring becomes more prevalent in the domestic and international business circle.
“Factoring in India is less than 1%... But there is still scope, because of its recent origin ...”
– Pankaj Gupta, Sr. Vice President & CF & RO of SBIGFL”