FACTORING IN

INDIAN CONTEXT
SUBMITTED BY
JITHIN JAYARAJ
S4, MBA
122032
 INTRODUCTION

• Factoring allows a business to obtain immediate capital or money based on the future income
attributed to a particular amount due on an account receivable or a business invoice.
• Accounts receivables represent money owed to the company from its customers for sales made on
credit.
WHO IS A FACTOR?

• An intermediary agent who funds receivables is a factor. A factor is simply a source of

financing that offers to pay the company the amount of an invoice minus
a commission and fee discount.
• The factor immediately advances much of the sum invoiced to the client and the rest to
the invoiced party upon receipt of funds. A transaction involving a factor involves three
parties directly—the factor that buys the receivable, the purchaser of the receivable, and
the debtor, who has to make a payment to the owner of the invoice.
FACTORING IN INDIA

• In India, Factoring is subject to the Factoring Regulation Act, 2011 and the
RBI Non-Banking Financial Company – Factors (Reserve Bank) Directions,
2012. As per the extant laws only certain NBFCs (with atleast 50% of the assets
and income representing assets and income from factoring business) or Banks
and Gov. bodies can act as factors – this resulted in a limited volume of
factoring in India, and thus the insignificant global presence. As such
the Factoring Regulation (Amendment) Bill, 2020 proposes to widen the scope
to all NBFCs along with other proposals to increase factoring volumes in India.
FACTORING IN INDIA

• Factoring is quite new to the Indian Financial System. The High-powered committee
constituted by the Reserve Bank of India under the chairmanship of C S
Kalyanasundaram has recommended promotion of factoring organizations in the country
and identified the small scale sector and the export sector as the primary target markets.
• Acting upon the recommendations of the committee, the Reserve Bank of India issued
guidelines and amended Banking Regulation act in 1991, permitting commercial banks to
start separate subsidiaries for rendering factoring services.
CONCLUSION

• Factoring in finance is a source of immediate capital. It is acquired in exchange for

accounts receivable. Hence, it is a financial arrangement between a financial institution
(factor) and a small or medium-sized firm (client).
• In India, Factoring is subject to the Factoring Regulation Act, 2011 and the RBI Non-
Banking Financial Company – Factors (Reserve Bank) Directions, 2012. 
THANK YOU…