|FAQ - Frequently Asked Questions
Q1 - What is factoring?
Factoring is an ongoing arrangement between the client and the factor, where the sales of goods and services are made on open account terms and the invoices for the same are assigned to the factor regularly for the purpose of funding, collection and sales ledger administration. Factoring involves a long-term relationship between the buyer and the seller with the whole turnover being assigned to the factoring company.
Q2 - What is the difference between Recourse and Non Recourse Factoring?
In recourse factoring, in the case of non payment of invoices by customers, the Factor will recover the amount advanced from the client. In non recourse factoring, the Factor provides both finance and credit protection. In case of non payment of invoices by customers, the Factor will bear the risk of bad debts.
Q3 - What are the types of factoring arrangement?
There are basically two types of Factoring arrangements:
1) Domestic Factoring- If you are selling in India.
2) International Export Factoring- If you are exporting form India
Q4 - Why should I use Factoring?
Through the use of Factoring your receivables are instantly converted into cash leading to improved cash flows that can help you fund your future growth.
We facilitate an efficient follow up of payments from buyers, which is made possible through relationships developed by us and our correspondent factors with your buyers.
Factoring provides credit protection for export sales which enables you to do business with buyers who are unwilling to open Letters of Credit.
Factoring also provides other peripheral services such as advisory services, credit assessment, etc.
Q5 - How much of my Invoice value can I get in advance?
Advances are made as a percentage of invoice value based on criteria, such as, quality of receivables, number and quality of the buyers and your requirements. Typically 80 % of invoice value is advanced.
Q6 - Will factoring create misunderstanding between me and my customers or the impression that I am in financial difficulty?
No. Worldwide, factoring volume is more than USD 700 billion a year, spread over nearly 60 countries and covering more than 1,00,000 businesses. Particularly in developed countries, factoring is an accepted way of conducting business.
Q7 - How will I be informed of my customer's payments?
You will get regular statement of accounts. For export factoring, as soon as our correspondent factor receives the payment, we will be notified through a speedy electronic medium, using the EDIFACT, or standard international electronic data interchange factoring network via satellite. In case of domestic factoring, we will inform you directly.
Q8 - Do I have to provide any other security besides invoices in factoring?
Generally, you need not provide any additional security. However it depends on every individual case and different parameters.
Q9 - When do I get paid under factoring?
A prepayment advance is given to you on the submission of the relevant documents and invoices and the balance amount is paid on actual receipt of the payment from the buyer.
Q10 - Can I get advances on my invoices through factoring and get funds from other traditional sources at the same time?
Yes, you can avail advances from your traditional sources of funding alongwith factoring services. However, we will only make the advances on the debtors against which you have not availed funding from any other institution.
Q11 - Which type of industries are suitable for factoring?
A large number of industries are now covered under factoring, including automobiles, pharmaceuticals, textile, garment and engineering. In addition to the manufacturing sector, the services sector industries, such as, travelling, telecommunications, software services and so on are also suitable for factoring.
Q12 -Is overdue (penal) interest charged on overdue bills?
For delayed payments beyond the approved credit period, a penal charge is applied on the entire funded outstanding, over and above the discount charges levied.
Q13. How are the Clients (Sellers) and Customers (Buyers) informed about their account status etc.?
Various reports such as statement of Accounts (Client Statements), Age Analysis, Discount Charges Reports, Debtor Statements etc. are provided free of cost to all clients on a monthly basis. The reports may alos be generated on demand for the clinet’s and debtors on case to case basis.
Q14. Why should Bank Borrowers opt for factoring?
• Factor replaces high cost market credit and enables purchases on cash basis for availing cash discounts.
• Quick response time.
• Instant finance against each invoice
• Low margin (up to 20%), thereby improving cash flow
• Low cost
• Finance charge on daily products at monthly intervals
• Periodic MIS reports & sales ledger administration
• Multiplies receivables Turnover, improves operating cycle resulting in higher production, larger sales, and higher profits.