1. Client Selection & Control
Mr. Tushar Buch
Managing Director & CEO
SBI Global Factors Limited
Chairman, Factors Association of India
Session on Factoring for MSMEs – RBI College of Agricutural Banking
Global Factoring Summit – Mumbai 5th May 2017

2. Factoring….. The origin in India
Factoring Overview
Kalyana Sundaram Committee recommended introduction of factoring in 1989.
Banking Regulation Act, 1949, was amended in 1991 for Banks setting up factoring services.
SBI / Canara Bank have set up their Factoring Subsidiaries:-
SBI Factors Ltd., (April, 1991)
CanBank Factors Ltd., (August, 1991).
Session on Factoring for MSMEs – RBI College of Agricutural Banking
Global Factoring Summit – Mumbai 5th May 2017

3. Global Factoring Summit – Mumbai 5th May 2017
Bibby Financial Services Ltd.
Canbank Factors Ltd.
IFCI Factors Ltd.
SBI Global Factors Ltd.
India Factoring and Finance Solutions P. Ltd.
DBS Bank Ltd.
HSBC Ltd.
Standard Charted Bank
ECGC
Factors Association of India (FAI), an industry level organization was established in 2006 as a Non-Profit making organization. It has 9 members – 5 Factoring Companies, 3 Banks and the ECGC as its members. Its main objectives are promotion of factoring on sound ethical lines and to encourage healthy business practices by all members. FAI and its members are driven by the common philosophy that factoring should be the preferred avenue of receivables finance, especially for MSME sector, because it helps transfer risk from the relatively weaker (MSME) seller to the stronger corporate buyers.
Global Factoring Summit – Mumbai 5th May 2017
Global Factoring Summit – Mumbai 5th May 2017

4. Global Factoring Summit – Mumbai 5th May 2017
Trade Finance – A Definition…..
Trade Finance offers a means to convert business opportunities, in Domestic as well as International markets, into sales by managing associated risks ; particularly the challenges of getting paid on a timely basis
It is essential for sellers to offer their customers attractive sales terms supported by appropriate payment methods
Global Factoring Summit – Mumbai 5th May 2017

5. Risk – Reward Equation in Trade Payment
Open Account
Cash-in-Advance
Document
Collections
Letters of Credit
Least
Secure
Most
Secure
Exporter / Seller
Importer / Buyer
Letters of Credit
Document
Collections
Cash-in-Advance
Open Account
Global Factoring Summit – Mumbai 5th May 2017

6. Activity of the prospect
Factoring Overview
Selection of Client in the Factoring industry is typically decided taking in to account various factors.
Activity of the prospect
Are they a manufacturer or a service provider ?
Or a Trading Company?
Nature of the prospective client
Is the prospect a Corporate or a Non-Corporate?
Type of industry
Is it a sunrise industry or an industry with good prospects.
Or comes under ‘negative’ outlook
Global Factoring Summit – Mumbai 5th May 2017
Session on Factoring for MSMEs – RBI College of Agricutural Banking

7. Any history of 2 way transactions with debtors.
Factoring Overview
Other factors that influence a credit decision::
relationship with the buyers over a period of time.
Any history of 2 way transactions with debtors.
tenor of the bill and transaction structure
Conduct of accounts with its Bankers.
External Credit Ratings & Financial Standing
Reports in public domain & Market information
Global Factoring Summit – Mumbai 5th May 2017
Session on Factoring for MSMEs – RBI College of Agricutural Banking

8. Global Factoring Summit – Mumbai 5th May 2017
Factoring Overview
Control Mechanisms
Verification of relationship between the Client and Seller for a minimum period of one year.
Taking on board only those buyers who are ready to accept the Notice of Receivables.
Digital acknowledgement of invoices
Cross verification of Logistics documents
Yearly Renewal Exercise
Insistence of Client External Credit Ratings
Periodical verification of outstandings with Debtors.
Information regarding high value invoices factoring
A robust factoring platform that throws out any transaction that are not in sync with the industry/clients historical pattern of trading.
Global Factoring Summit – Mumbai 5th May 2017

9. Global Factoring Summit – Mumbai 5th May 2017
Factoring Overview
Control Mechanisms- other steps
Prefer large Corporate/MNCs as Debtors, who is not an associate of the client.
The debtors should have investment grade rating from External Rating Agencies
Debtor visits could reveal any mismatch of transactions routed through us.
Constant interaction with Bankers including request for periodical information like….
Opinion Reports
Latest Sanction letters
Stock Statements etc
Global Factoring Summit – Mumbai 5th May 2017

10. 3 Important pillars for a successful Factoring Transaction !
Factoring Overview
A Client like…
A small scale manufacturer or a service provider…
Whose working capital cycle gets held up due to credit sales to its buyers…
Who is unable to access cheaper financing from alternate sources/banks…but with sound financials)
With a Debtor like….
A large corporate or MNCs with good financial standing with investment grade external rating..
Should be ready to accept the Notice of Receivables and also abide by the Factoring Regulation Act.
Sound Transaction Structure like…
Acceptance of invoices /trade documents preferably online..
Periodical confirmation of balances payable.
Absence of 2 way transactions between Client and Debtor
Submission of proper logistics documents that are easily verifiable..
Global Factoring Summit – Mumbai 5th May 2017
Session on Factoring for MSMEs – RBI College of Agricutural Banking

11. Global Factoring Summit – Mumbai 5th May 2017
THANK YOU
Global Factoring Summit – Mumbai 5th May 2017