What is NBFC – FACTORS? And Way Forward !
BOOK A FREE CONSULTATION
Get help from an experienced legal adviser. Schedule your consultation at a time that works for you and it's absolutely FREE.
Every business do raise invoice to its Debtors with some credit limit. Meantime, financial industry understood the need of continuous flowing of the credit/money irrespective of credit limit. Though cash discount and incentives are there initiated by Entrepreneur to early realization of their market outstanding to motivate the payment at advance or on before the credit time limit. Still it is not required that the client/receivables be realized as needed. Hence the Bank and Financial Institution come up with the concept of Bill discounting i.e. Factoring of Invoice subject to preset of condition and requirements.
What is Factor?
It is a method or financial product to allow a business to get immediate capital or money based on the future income attributed to a particular amount due on account receivables or a business invoice. Account receivables represent money owed to the company from its customers for sales made on credit. To do factoring business, pursuant to Factoring Regulation Act, 2011 entity need to take registration from Reserve Bank of India prior to commence the business of factoring. This is regulated by Reserve Bank of India as Non-Banking Finance Company.
Why to start this business?
Every business organization is dying for management of working capital due to credit limit period, GST payment and so on. So business need credible and affordable factoring institution to realize their outstanding invoice at earliest so that the same can be place on their business activity to circulate the transaction more on more. As the initial infuse money been utilized on sourcing of Raw Material, Production, Marketing and Distribution along with transportation, every organization is looking for their minimum cost working capital arrangement from Bank and Financial Institution. However disappointment does not let you leave away, again the process to get the fund for working capital to organization long length and tedious process including collateral and all matter. So now Entrepreneur looks to finance their outstanding invoice on reasonable and affordable price where long length process to materialize and collateral matter does not come to picture hence observed way more effective to liquidate the existing outstanding invoice.
Read Our Blog: NBFC Non-Banking Financial Companies Registration in India
When to start this business?
Each business required registration and license, way beyond the knowledge of as such business. How such business is run and operated in order to save and earn from capital infused in the business. Therefore when you have required capital, resources and knowledge with experience then its right time to start with registration of business and licenses there forward. First you need to register the company with an object of factoring under the provision of Companies Act, 2013. Once the company been registered then it need to have required capital in the company with the fixed deposit to substantiate the fact that the required capital adequacy been fulfilled.
Board of Director should possess the academic qualification and followed by experience in this business and the member/shareholder providing the initial fund to company should be clean money.
Once you are equipped with the understanding of business and its credential requirements then now the company is ready to start the registration and license.
Technically sound, in-depth knowledge of market and business vertical and well equipped with resources in addition to minimum capital requirement of INR 5 Crore, applicant can apply pursuant to Factoring Regulation Act, 2011 to Apex Bank of Country Reserve Bank of India.
Statistically, as of now it is around 7 registered and license entity to run the Factoring Business in India covering the businessman of across the India, do proof and give ample opportunity to explore the market fair enough. So opportunity is huge as this market is not more exploited by the existing market player. Meaning thereby new people or player have space in market to run the business.
Now, the matter is how to incorporate the company and apply for registration with Reserve Bank of India to commence the business of factoring in India.