FACTORING

REGULATION
ACT, 2011
FACTORING REGULATION ACT, 2011

 Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party
(called a factor) at a discount in exchange for immediate money with which to finance continued business.
 Usually the period for factoring is 90 to 150 days. Some companies allow more than 150 days.
 Factoring Companies in India – Canbank Factors ltd, SBI Factors and Commercial Services Pvt. Ltd., The
Hongkong and Shanghai Banking Corp Ltd., Foremost Factors Ltd., Global Trade Finance Ltd., Small Industries
Development Bank of India(SIDBI).
 Factoring Transactions are governed by following Acts – Indian Contract Act, Sale of Goods Act, Transfer of
Property Act, Banking Regulation Act, Foreign Exchange Regulation Act.
PROCESS OF FACTORING
Credit sale of goods
Customer Client
Invoice

Pays the Submit

balance invoice
amount copy
Pays the amount (In
recourse type customer
pays through client)
Payment upto
80% initially

Factor
MECHANICS OF FACTORING

 The client sells goods to the buyer and prepares invoice with a notation that debt due on account of this invoice
is assigned to and must be paid to the Factor.
 The client submits invoice copy only with Delivery Challan showing receipt of goods by buyer, to the Factor.
 The Factor, after scrutiny of these papers, allows payment (usually upto 80% of invoice value). The balance is
retained as Retention Money(Margin Money). This is also called Factor Reserve.
 The drawing limit is adjusted on a continuous basis after taking into account the collection of Factored Debts.
 Once the invoice is honoured by the buyer on due date, the Retention Money credited to the Client’s Account.
 Till the payment of bills, the factor follows up the payment and sends regular statements to the Client.
TYPES OF FACTORING

 Domestic Factoring
 Recourse Factoring
 Non Recourse Factoring

 International Factoring
 Single/Direct Factoring System
 Direct Export Factoring
 Direct Import Factoring
 Back to Back Factoring
THANK YOU..!!