This document discusses two sources of finance: factoring and securitization. Factoring involves a business selling its bill receivables to a third party at a discount to raise funds. Securitization pools assets so they can be repackaged into interest-bearing securities, with interest and principal payments passed to purchasers. Both provide businesses with immediate cash flow but involve costs and risks like higher finance charges, contingent liability, and complexity. Examples of factoring and securitization companies in India are provided.

1. Sources of Finance:
Factoring & Securitization

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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.

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Process

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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

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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

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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.

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8. 8
Process

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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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Example
Securities issued by SBI

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