Friday, January 16, 2015

Factoring Services

What is Factoring
Medium Enterprises) a certain upfront amount of receivables (up to 80 per cent) that SMEs expect from their buyers for selling their products. In turn, the SMEs assign their receivables to the factors, which then pursue the buyers and recover the amount. After pocketing the profit and recovering costs, factors pay back the balance to the SMEs. SMEs benefit because they get capital immediately, which in turn can be used to generate more business.

Regulatory Changes 

The Reserve Bank of India, set out guidelines for setting up of and operating the Trade Receivables Discounting System (TReDS), to facilitate financing of bills of MSMEs (Micro, Small & Medium Enterprises) drawn on corporate and other buyers, including the Government Departments and PSUs. TReDS will be an electronic trade platform where the sellers will place their receivables and interested financiers will pick it up and chase the buyers.

One of the impediments clearly is the absence of recovery tools such as Debt Recovery Tribunals (DRTs) and SARFAESI, which do not allow factoring entities to go after the buyer. RBI relaxes Factoring Norms

RBI relaxes Factoring Norms
According to the relaxed principal business criteria, factoring companies have to ensure that their financial assets in the factoring business constitute at least 50 per cent (against 75 per cent earlier) of their total assets and their income derived from factoring business is not less than 50 per cent (75 per cent earlier) of their gross income.


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