factoring as an important tool for working capital management

8/12/2019 Factoring as an important tool for working capital management

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Finance Sector of India

Financial Sector of India is intrinsically strong, operationally sundry and exhibits competence andflexibility besides being sensitive to Indias economic aims of developing a market oriented, industriousand viable economy.

An established financial sector assists greater standards of endowments and endorses expansion in theeconomy with its intensity and exposure. he fiscal sector in India entails banks, financial organi!ation,markets and services. he sector is classified as organi!ed and conventional sector that is also recogni!edas unofficial finance market.

Fiscal transactions in an organi!ed industry are executed by a number of financial organi!ations which arecommercial in nature and offer monetary services to the society. Further classification includes bankingand non"banking enterprises, often recogni!ed as activities that are client specific.

he chief controller of the finance in India is the #eserve $ank of India %#$I& and is regarded as thesupreme organi!ation in the fiscal structure. 'ther significant fiscal organi!ations are business banks,domestic rural banks, cooperative banks and development banks. (on"banking fiscal organi!ations entail

credit and charter firms and other organi!ations like )nit rust of India, *rovident Funds, +ife Insuranceorporation, -utual funds, I, etc.

Financial Sector of India Eligibility for government autonomy

-entioned below are certain criterions that are re/uired to be fulfilled for ac/uiring governmentautonomy in India0

Availability of sufficient fund of up to 12

Accessibility of total non"performing wealth of below 32

-inimum net possessed funds of more than )S4 5.6 million and net revenues of minimumpast three years.

Financial institutions that satisfy the abovementioned re/uirements will be authori!ed

functional independence in almost all managerial areas.

Financial Sector of India RBI guidelines for NBFC's

he #eserve $ank of India has relaxed its guidelines for the operation of non"bank finance companies%($Fs& in India considering the various investments from the investors. It has also permitted leasing of

machinery and rent"buying credit firms with endowment level rankings to avail public savings increasethe maximum limit on the amount of public investments on these ($Fs that may allow and expand theclosing date for observance on its norms by two years.

he fiscal competitiveness of several ($Fs persists to be of importance to the administration andreserve bank of India controllers. here is a significant merging activity in this industry as ($Fs areregulated by stringent yardsticks that are obligatory to fulfill.

In addition, India has entered into new agreements with 7' in the area of fiscal services in eneva on


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4ecember 8339.

Financial Sector of India Chief Characteristics

Some of the major characteristics of Financial Sector of India are

he financial sector of India allows -ost Favored (ation %-F(& reputation to all

international banks and firms offering financial facilities.

he sector has relaxed previous -F( tax exemption on banking activities.

Allows 85 new financial bank division authori!ations every year to international banks, that is

higher as compared to the existing 1 every year.

#aises the 8:2 limit of reinsurance by insurance firms in India.

*ermits 682 foreign endowment in fiscal advisory, issuing, hiring, business enterprise capital,

business banking and non"banking credit firms.

ypes of Finance

here are two main sources of finance0

;/uity Financing " money invested into your business in exchange for a share in its ownership.

4ebt Financing " usually in the form of a loan where the principal amount borrowed and interest

accumulated on the loan needs to be paid.

here are a number of sources of e/uity finance available to business. his includes0

*ersonal Savings0 money that you personally invest into the business.

Friends and #elatives0 people that you personally know invest into the business to lend

assistance.

Angel Investors0 wealthy individuals who lend their personal finances to a business in return for a

share in its ownership.


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4ebt Financing = ommercial $ank +oans4ebt financing does not give the lender ownership control,but the principal must be repaid with interest. +ength of the loan, interest rates, security and other termsdepend upon for what the loan is being used.

Short"term0 +oans for short periods %>:"81: days& usually made to cover temporary or seasonal needsfor inventory or personnel. hese are common for established businesses, but may be hard for a newbusiness to obtain. he key to getting a short"term loan is to always have an identified primary andsecondary source of repayment. A short"term loan will probably be either a time loan or a line of credit,both with maturities of one year or less. hese types of loans often possess the following characteristics0

ime loans are made for a specified period when there is an identified source of repayment that will beavailable within a specified period of time. *rime candidates for these loans are seasonal businesses,with the source of repayment being the conversion of inventory to receivables and then into cash.

+ines of credit are annually renewable pre"approved vehicles allowing the borrower access to creditwhenever needed within predetermined terms. he business owner can borrow and repay as the businesscash flow dictates. A line of credit is usually documented by a loan agreement, a contractual documentthat details the specific terms and covenants which must be observed. Self"li/uidating purchases ofinventory or the bridging of expenses pending the collection of accounts receivable are examples of usesfor a line of credit.

-edium to long term0 hese loans may be repaid over anywhere form 8 to 6 to even 5: years dependingon how the funds are used. he source of repayment is the cashflow of the business. ypical uses are fore/uipment, fixed assets, etc. -ost loans to start a small business will be of this type. 'ften referred to asterm loans or installment loans, these usually cost more than short"term credit. he most common usesfor long"term loans are to provide working capital, to purchase e/uipment, or to buy or improve landand?or buildings.

7orking capital loans represent funding for all purposes that are not fixed assets or a line of credit.;xamples could be general and administrative funds for expanding the business, a percentage of thepurchase of permanent assets, the costs of building out leased space or for purchasing furniture, fixtures,or computer and automotive e/uipment. $anks usually re/uire 5:">: percent as a down payment andwill finance the balance for a period of three to seven years.

+oans for e/uipment generally will be extended for a term consistent with the depreciable value of theassets.

#eal estate financing0 #eal estate is typically financed over a fairly long term, 8: to >: years. ;xpect adown payment of about 5:2.

(on"$ank 'ptions0 Asset"$ased +endingSummari!ed, the term asset"based lending came into vogue inthe 839:s to describe an industry that included speciali!ed lending departments of banks, non"bankcommercial finance firms, and factoring organi!ations. oday, asset"based lenders provide a variety offinancial services to small, medium, and large businesses through0

secured lending against the assets of a corporation,

loans for machinery and e/uipment, real estate, leasing, import"export financing, ac/uisitions, and

factoring accounts receivable.

his area of financing should be part of the working knowledge of every small business owner.ombined with the commercial lending services of a firms bank, and a working knowledge of state andfederal loan programs, asset"based lending %or the broader category of non"bank commercial finance&rounds out the available sources of debt financing available to the growing small enterprise.

odays small business owner must be knowledgeable about all forms of financing, what they can do,why one method may be better than another, and where sufficient funds can be found. iven the highly


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regulated credit markets faced by banking institutions it only makes sense to maximi!e knowledge oflending options for your business.

he small business owner familiar with bank lending will find an asset"based lender capable ofstructuring similar loans and lending agreements with a willingness to take slightly more risk.


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his form of financing is subCect to several regulatory and legal re/uirements. Accordingly, directsupport and continuing assistance from a professional team of financial, legal, and accounting advisorsis re/uired to assemble the necessary written materials and establish a successful financial marketingplan. A complete business plan is necessary and due diligence should be expected. 'wnership sharingand valuation can be significant issues.

Strategic *artners

his evolving area of e/uity financing in its most basic form, represents some other businessenterprise%s&, related or unrelated to your venture investing to achieve some advantage, economic ornon"economic, by providing goods, services, support, and?or attractive credit arrangements to you inreturn for goods, services, and?or a potential e/uity position. For example, a maCor product or materialsupplier may grant very favorable payment terms to allow extended time for receivables recovery andimproving and?or stabili!ing cash flow in return for exclusive dealing, the prospect of larger orders bytracking a firms success, handsome interest charges, and?or even potential e/uity involvement.

his type of financing is extremely effective and, due to its focus, /uite efficient. It can occur in a widevariety of forms and can even involve direct competitors in teaming arrangements. Sourcing is usuallywith professional financial and business advisors re/uiring a good professional support team, and solidbusiness planning.

6 Forms of Financing for Small $usiness

8. $ank loan

he most common form of financing is a commercial bank loan. Dowever, it can be difficult for an S-;

to /ualify for this form of financing. $anks prefer to lend to companies with experienced owners that can

show a history of profit and stability. ;ven companies that are eligible for bank financing sometimes find

the terms stifling.

5. Asset based lending

his is similar to a bank line of credit but with a few key differences. he main one is that the amount of

money you are able to borrow is primary based on a percentage of the total assets under consideration.

ypically, assets considered for this type of loan would be accounts receivables with some combination

of machinery, inventory and e/uipment. In most cases the lender can provide up to 162 of the accounts

receivables and up to E:2 of the inventory. Asset based lending is often used when a bank line of credit

is too inflexible, slow or unattainable.

4ocuments #e/uired0

!ocuments Re"uired For India factoring Field Survey

8. $rief on"company profile covering business model and details on directors and key management

personnel.


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#$ %atest Shareholding &attern of the com&any$

>. 4etails of Associates group companies, list of companies where either the company or -anagerial

person has any stake holding as follows0

(ame of the

Associate

or group company

(ame of the

*erson

who has holding

(umber of Shares


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>. Additionally E months statements from that bank where maximum transaction takes place. %If not

covered in point 5 above&

. All ?+ statements from all the banks.

6. If the company is already enCoying any factoring limit from any banker, Sanction letter and last E

months statement of the same E. Stock B $ook debt statement submitted to all the bankers for last >

months.

Com&liance

8$ %ast three months;lectricity ?water bills of primary factories I operating locations

5. Any certification ?awards obtained by the clients like IS'

>. *ollution ontrol board certificate . opies of last > monthsG hallans for deposit of statutory dues

e.g. " *F, ;SI, 4S, Advance ax, ;xcise, . ;xcise (o. %If applicable&

.


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>. Factoring

his form of financing fills a gap in the credit market because it creates an immediate influx of cash based

solely on invoices. It tends to have more flexibility and is easier to /ualify for than asset based lending or

bank financing. A factor purchases your accounts receivables and advances 9:2 to 3:2 of the total.

'ften factoring is used by service"based companies that dont have collateral, start"ups, companies with

seasonal work and companies that are growing /uickly. Its also useful for companies that have hit hard

times and need cash flow to turn around their business.

. -erchant ash Advances

his form of financing is a solution for companies that are having difficulty securing traditional loans or

need funding for a special proCect. As opposed to factors that are purchasing current invoices, cash

advance providers are purchasing future income. hese providers offer businesses a lump sum of capital.

)nlike a loan, you pay a set percentage of your daily credit cards sales until the cash advance company

recovers their advance and premium. Although this is a more costly form of finance, it is a useful solution

for companies like restaurants with strong credit card sales that need capital to grow their business or

purchase new e/uipment.

6. *urchase 'rder Finance

his form of finance generates working capital to pay for finished goods or components based on your

customers purchase order. A *urchase 'rder Finance company pays your supplier to produce and ship

goods so you can fulfill a customers order. 'nce you fulfill the order, you invoice your customer and

send a copy to the *.'. finance company. hey collect payment for that invoice and return the payment to

you, less a fee. his is a solution for companies that need increased cash flow to take on new business or

expand their operations.

hese are Cust a few of the types of financing available to S-;s. here are many options to explore that

can free up cash and help grow your business. 7hichever form of finance you pursue, youGll find that the

revenue you generate from expanding your operations can far outweigh the cost of alternative finance

solutions.

orporate Finance0


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8& he financial activities related to running a corporation.

5& A division or department that oversees the financial activities of a company. orporate finance is

primarily concerned with maximi!ing shareholder value through long"term and short"term financial

planning and the implementation of various strategies. ;verything from capital investment decisions to

investment banking falls under the domain of corporate finance.

Among the financial activities that a corporate finance department is involved with are capital investment

decisions. Should a proposed investment be made Dow should the company pay for it@ with e/uity or

with debt, or combination of both Should shareholders be offered dividends on their investment in the

company hese are Cust some of the /uestions a corporate financial officer attempts to answer on a

consistent basis. Short"term issues include the management of current assets and current liabilities,

inventory control, investments and other short"term financial issues. +ong"term issues include new capital

purchases and investments.

7orking apital

7orking capital is defined as the difference between current assets and current liabilities. urrent assets

are the most li/uid of your assets, meaning they are cash or can be /uickly converted to cash. urrent

liabilities are any obligations due within one year. 7orking capital measures what is leftover once you

subtract your current liabilities from your current assets, and can be a positive or negative amount. he

working capital is available to pay your companyGs current debts, and represents the cushion or margin of

protection you can give your short"term creditors.

*ositive 7orking capital is essential for your company to meet its continuous operational needs. he

availability of working capital influences your companyGs ability to meet its trade and short"term debt

obligations, as well as to remain financially viable. If your current assets do not exceed your current

liabilities, you run the risk of being unable to pay short term creditors in a timely fashion.

$usinesses that are seasonal or cyclical often re/uire more working capital to stay afloat during the off

season. Although your company may make more than enough to pay all its obligations yearly, you must

ensure you have enough working capital at any one time to meet your short term obligations. For

example, a company may do significantly more business over the holidays, resulting in large payoffs at

the end of the year. Dowever, the company must have enough working capital to buy inventory and cover

payroll during the off season as well, when revenues are lower.

7orking apital Finance

he term working capital has several meanings in business and economic

development finance. In accounting and financial statement analysis, working capital is defined as the

firms short"term or current assets and current


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liabilities. (et working capital represents the excess of current assets over

current liabilities and is an indicator of the firms ability to meet its shortterm financial obligations

%$realey B -yers, 5::5&. From a financing perspective, working capital refers to the firms investment in

two types of

assets. In one instance, working capital means a businesss investment in

short"term assets needed to operate over a normal business cycle. his meaning corresponds to the

re/uired investment in cash, accounts receivable,

inventory, and other items listed as current assets on the firms balance sheet.

In this context, working capital financing concerns how a firm finances

its current assets. A second broader meaning of working capital is the companys overall nonfixed asset

investments. $usinesses often need to finance

activities that do not involve assets measured on the balance sheet. For

example, a firm may need funds to redesign its products or formulate a new

marketing strategy, activities that re/uire funds to hire personnel rather than

ac/uiring accounting assets. 7hen the returns for these Jsoft costsK investments are not immediate but

rather are reaped over time through increased

sales or profits, then the company needs to finance them. hus, working capital can represent a broader

view of a firms capital needs that includes both

current assets and other nonfixed asset investments related to its operations.

In this chapter, we use this last meaning of working capital and focus on the

tools and issues involved in financing these business investments.

ypes of redit facilities by $anks0

'verdraft0 he word overdraft means the act of overdrawing from the $ank account. In other words, the

account holder withdraws more money from the urrent Account than has been deposited in it. he loan

holder can freely draw money from this account up to the limit and can deposit money in the account. he

'verdraft loan has an expiry date after which renewal or enhancement is necessary for enCoying such

facility. Any deposit in the overdraft account is treated as repayment of loan. Interest is charged as

balance outstanding on /uarterly basis. 'verdraft facilities are generally granted to businesspersons.

ash redit0 hese are also the facilities where, like overdrafts, a limit is set in the account not exceeding

one year. Dowever difference is that a separate Jash redit account is opened by the bank where limit

is applied instead of clients account. $anks lend money against the security of tangible assets or

guarantees in the method. It runs like a current account except that the money that can be withdrawn from

this account is not restricted to the amount deposited in the account. Instead, the account holder is


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permitted to withdraw a certain sum called JlimitK or Jcredit facilityK in excess of the amount deposited in

the account. 'nce a security for repayment has been given, the business that receives the loan can

continuously draw from the bank up to that certain specified amount. he purpose of cash credit is to

meet working capital need of businesspersons.

$ill 4iscounting0 )nder this type of lending, $ank takes the bill drawn by borrower on his %borrowers&

customer and pays him immediately deducting some amount as discount and commission. he $ank then

presents the $ill to the borrowers customer on the due date of the $ill and collects the total amount. If

the bill is delayed, the borrower or his customer pays the $ank a pre"determined interest depending upon

the terms of transaction.

erm +oan0 his type $anks lend money in this mode when the repayment is sought to be made in fixed,

pre"determined installments. hese are the loans sanctioned for repayment in period more than one year.

his type of loan is normally given to the borrowers for ac/uiring long"term assets.

Short erm loan0 erm loan extended for short period usually up to 'ne year is term as S+. his type of

loan may or may not have specific repayment schedule. Dowever, S+ with repayment schedule is

preferable.

+etter of redit0 his is a pre"import finance, which is made in the form of commitment on behalf of the

client to pay an agreed sum of money to the beneficiary of the +? upon fulfillment of terms and

conditions of the credit. hus at this stage bank does not directly assume any liability, as such the same is

termed as contingent liability.

*ayment against 4ocuments0 *ayment against 4ocuments or simply %*A4& is a post"import finance to

settle the properly drawn import bills received by the bank in case ade/uate fund is not available in

clients account. his is a demand loan for interim period and li/uidates by retiring import bills by the

client. he bank shall immediately serve a notice upon the client mentioning arrival of documents with a

re/uest to arrange retirement of the same immediately.

+oan against rust #eceipt %+#&0 his is also a post"import finance facility awarded to retire import bill

directly or under *A4 as the case may be. In this case, bank may or may not reali!e margin on the total

landed cost, depending upon banker"customer relationship. Dere the possession of the goods remains with

the borrower and the borrower executes L+etter of rust #eceipt in acknowledgement of debt and its

repayment along with interest within agreed period of time.

;xport Finance0 +ike import finance 4$+ advances in export trade at both pre and post shipment stages.

In this type of advance, standing of both opener and beneficiary of export +? as well as standing of the

+? issuing bank are of important consideration. he pre"shipment facilities are usually re/uired to

finance the costs to execute export orders, such as0 procuring B processing of raw materials, packagingand transportation, payment of various fees and charges including insurance premium. 7hile post"import

facilities are directed to finance exporters various re/uirements, which are re/uired to be settled

immediately on the backdrop that usually, settlement of export proceeds takes some time to complete.

Syndicated +oan0 hese are the loans usually involving huge amount of credit and such to reduce a

particular banks stake. A number of banks and financial institutions participate in such credit, known as


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loan syndication. he bank primarily approached by arranging the credit is known as the lead or

managing banks.

+ease Finance0 hese types of finance are made to ac/uire the assets selected by the borrower %lessee& for

hiring of the same at a certain agreed terms and conditions with the bank %lessor&. In this case, bank

retains ownership of the assets and borrower possesses and uses the same on payment of rental as per

contract. In this case, no down payment is re/uired and usually purchase option is not permitted.

$ank uarantee0 $ank uarantee is one sort of non funded facility. $ank uarantee is an irrevocable

obligation of a bank to pay a pre"agreed amount of money to a third party on behalf of a customer of a

bank. A contract of guarantee is thus secondary contract, the principal contract being between the

beneficiary and creditor and the principal debtor themselves to which guarantor is not a part. If the

promise or the liability in the principal contract is not fulfilled or discharged, only then the liability of

guarantor or surety arises.

Factoring

Factoring is a financial transaction whereby a business sells its accounts receivable %i.e., invoices& to athird party %called a factor& at a discount.

In MadvanceM factoring, the factor provides financing to the seller of the accounts in the form of a cash

Madvance,M often 9:"162 of the purchase price of the accounts, with the balance of the purchase price

being paid, net of the factorGs discount fee %commission& and other charges, upon collection from the

account client. In MmaturityM factoring, the factor makes no advance on the purchased accounts@ rather, the

purchase price is paid on or about the average maturity date of the accounts being purchased in the batch.


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Dow it works 0

Hou deliver goods or services to your client and raise an invoice.

'n an on"going basis, all such invoices of a pre"agreed buyer, along with supporting trade documents are

assigned to India Factoring.

India Factoring advances you a pre"payment as early as the next business day on receipt of such

documents %subCect to being in order&.

'n settlement of the respective invoice by your buyer to India Factoring, the balance amount %if any& is

credited to your account.


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$enefits 0

Hou benefit from predictable cash flows linked directly to performed sales.

#eadily convert credit receivables to cash, as India Factoring will provide pre"payment immediately.

'n submission of complete documentation, funding normally by next business day. Nuick turnaround

times ensure incremental cash flow planning and management.

India Factoring can additionally provide credit assessment on customers, new or existing.

Free monthly Account #eceivable reporting, sales ledger administration and debtor follow"up.

(o additional debt created on your balance sheet.

Hour Mcredit lineM grows as your business expands. ;xtremely scalable form of leverage.

*ossibility of outsourcing your receivables collections process, allowing you to focus on your core

business

ypes of Factoring

Factoring with recourse is the standard type of factoring facility whereby the company accepts the credit

risk in the event of the failure of his customer. here is a notice of assignment on each invoice stating that

it has been assigned to A$ Factors +td and payment should only be made to them

Factoring without recourse is where the factoring company assumes the credit risk in the event of the

failure of the customer. he factor will assign each customer a credit limit and will accept the credit risk

up to that limit. 'ften they will refuse to fund any invoices in excess of the credit limit which can mean

problems for their clients cash flow.


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In both cases the factor carries out the administration of the sales ledger and is responsible for the

collection of overdue debts and this should result in savings in overheads as well as the prime purpose of

increasing li/uidity.

Factoring companies in India

anbank Factors +imited0 http0??www.canbankfactors.com

S$I lobal0 http0??www.sbiglobal.in

he Dongkong and Shanghai $anking orporation +td0 http0??www.hsbc.co.in?8?5?corporate?trade"and"factoring"services

IFI Factors +imited0 http0??www.ifcifactors.com

India Factoring and Finance Solutions *vt +td0 http0??www.indiafactoring.in

lobal rade Finance +imited0 http0??www.gtfindia.com

4$S0 http0??www.dbs.com

;xport redit uarantee orporation of India +td0

https0??www.ecgc.in?*ortal?productnservices?maturity?mfactoring.asp

itibank (A, India0 http0??www.citibank.co.in

Small Industries 4evelopment $ank of India %SI4$I&0 http0??www.sidbi.in?fac.asp


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Standard hartered $ank0 www.standardchartered.co.in

Comparison between Bill Discountingand Factoring.

Bill Discounting Factoring

1. Individual Transaction

2. Each bill has to be individually accepted by the

drawee which takes time.

3. Stamp duty is charged on certain usance bills together

with bank charges. It proves very expensive.

4. More paperwork is involved.

5. Grace period or payment is usually ! days.

6. "riginal documents like MT#$ ##$ and %ill o &ading

are to be submitted.

7. Charges are normally up ront.

1. 'hole turnover basis. This also gives the client

the liberty to draw desired inance only.

2. ( one time notiication is taken rom the

customer at the commencement o the acility.

3. )o stamp duty is charged on the invoices. )o

charges other than the usual inance and service

charge.

4. )o such paperwork is involved.

5. Grace periods are ar more generous.

6. "nly copies o such documents are necessary.

7. )o upront charges. *inance charges are levied

on only the amount o money withdrawn.

Comparison between Cash Creditand Factoring.

Cash Credit Factoring

1. Margin retained on receivables are usually +,-, /.

2. The drawing power on the basis o stock statements

is computed once a month. I invoices are raised

between submissions o stock statements$ no money

can be drawn against them.

3. The client has to submit various statements like 0IS$

I$ II 1 III stock statements etc. to the bank.

4. )o collection services perormed or the clients.

1. Margin usually retained is 2, /.

2. 3repayments against invoices are made as and

when they are actored. It is like cash sales.

3. )o statements are to be given. "n the contrary

*actors urnish various reports to both the client and

the customer.

4. "ne o the unctions o the actor is debt
http://www.standardchartered.co.in/http://www.standardchartered.co.in/


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5. "nce a book debt exceeds its usance period$ it is

removed rom the eligible list

6. 4igher limits are biurcated into CC and 5&

components.

7. Interest linked to 3.

collection

5. The *actor allows grace up to !, days.

6. )o such biurcation. The actoring accountoperates like a CC account

7. *inance charge linked to our cost o unds$ which

is competitive to that o banks.

Flow hart of Factoring0

8. Initial -eetings0 his is the initial stage wherein a customer approaches india factoring either through

consultancy or via reference from existing customers or we have direct approach from the customers

through the ads published in leading business newspapers and A maga!ines. he relationship managers

conduct a meeting and get the first impression about the company. his stage is the most important in the

entire flow chart as the portfolio of the company is studied and decision is made whether it is a

prospective customer or not. he target customers of the company are the companies ranging from a

turnover of 5:cr to 6::cr. he customer here is informed about the process charges i.e. 51:3:#S. his

amount is nonrefundable.

5. Initial 'ffer Issuance0 India Factoring gets a commitment from the customer wherein the customer

accepts the processing charges. he company formulates the pricing structure i.e. the interest rate that will

be charged against fund issued to the customer. he interest rate is usually between 85 to 86 percentdepending upon the turnover of the customers company.

.he I/ issuance letter format is as follo0s

4ate0558:85:8>

o,


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Oind Attention0 -r. P %-anaging 4irector&

4ear Sir,

At the outset, we wish to thank you for the opportunity of discussing mutually beneficial businessopportunities, Further to our discussions and the information provided to us, we are glad to state our

indicative terms and conditions.

Facility Sales Factoring

*roposed Facility I(# : -illion

enor -ax of 3: 4ays from lnvoice 4ate or as per historical receipts captured in survey

or as per contract with you, whichever is lower.

*roposed Funding 2 9:2 %Approx.&

4iscount #ate 8.56:?o p,a. or $ank rate %whichever is higher&

Service harge %per

invoice& and 9:2

%Approx.&

:.56:?o per invoice value :.96:?: of the sanctioned facility limits payable at the

time of setup Q -aintenance Fee

Assessment A non"refundable fee of I(# 56,:::?" plus applicable taxes to be paid at the timeof acceptance of this letter.

Facility

4ocumentation

Factoring Agreement

$oard #esolution .

Signature


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'verdue Interest Additional 62 p.a. chargeable on the overdue invoices

'ther onditions Favorable commercialterms and conditions stipulated by the other

$anks?+enders will apply mutatis mutandis to our account also,

ransaction4ocuments

(# %(otification 'f ransfer #eceivables& 'riginal copy of lnvoice %with assignment text&R

ransaction backed *4Gs of banker

*roof of Shipment %one of the below

o 'riginal +orry #eceipt

o Accepted 4elivery hallan

R *urchase 'rder

R lnvoice to have a credit period.

Financing only to the extent of the credit period.

RR Additionally client needs to also confirm receipt of good

'ther onditions All the invoices raised on approved debtors should be routed through

lndia Factoring and Finance Solutions *vt. +td. %lF+&

4isbursement will be made in your account only

'n account payment will not be accepted and the debtor has to make

invoice wise payment.

*lease note that the above is merely an indication of our terms and conditions based on ourunderstanding of your business re/uirements etc, lt does not and should not be deemed to constitutein any manner, form or matter, our commitment or offer to either provide the services and?or maintainthe terms as stated, *lease also note that all the above terms and conditions etc., if agreeable, aresubCect to our internal?onsite credit appraisal processes and we reserve the sole and unconditional rightto withdraw our interest or delete?modify any condition that we feel necessary. Should there be, in youropinion, a change in the circumstances or understanding on the basis of which this indicative termsheet has been prepared, we re/uest you to bring it to our notice at the earliest.

7e are confident you will find the above terms and conditions to your interest and look forward to yourin"principle approval to help us progress with evaluation of the facility at the earliest. 7e would also

re/uest you to provide all information?documentation that we may re/uire to facilitate our creditappraisal process.

Hou are re/uested to note that lndia Factoring only deals with professional you clients. $y signing thisletter undertake that you have appropriate experience to deal with financial products and you havedecided to avair of the facirities being offered by us after understanding the same.


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Hou and your 4ebtor, as the case may be, are neither Affiliated company direcfly or indirecfly nor their4irectors?shareholders and?or *artneis are even distanfly related to each other and that both you and your4ebtorG as the case may be, are not under the common control. you further confirm that you and your4ebtor, as the case may be, is not having any two way trade between yourselves.

7e re/uest you to sign a copy of the letter and pay the aforesaid assessment fee confirming acceptance of

the indicative terms and conditions mentioned above.

hanking Hou,

For lndia Factoring and Finance solutions &rivate %imited

#- (ame0 *arul#oy

4esignation0 -anager

Facility and erms Agreed0

For Name of the 1om&any

(ame of the Authori!ed Signatory

4esignation0

>. Survey0 At this stage the assessment of the ledger of the customers debtors takes place based on this a

conclusion is drawn whether to proceed with the customer or not. he customer is re/uired to provide

with necessary bank account documents such as balance sheet of at least past > years, bank statements of

past E months and any other statutory re/uirements.

. Field survey report%FS#& Q redit assessment (ote%A(&0 FS# and A( report is prepared by the

official As of the company where they give a detailed report of the entire analysis of the customers

company. his mostly takes 5 days for the customers login. his is one of the key stage wherein the

company knows even the minutest detail about its customers profile. 'n the basis of this report scores are

given to the customers company and interest rates are decided accordingly, higher the score lower will be

the interest rate giving a benefit to the customer.

6. redit Nueries0 the As give their opinion on the above report. hey have intense discussion after

which they come up with certain /ueries and /uestions such as, why is the limit not utili!ed to the

fullest, why is there is a overdraft facility taken on . All these /uestions are listed down and are sent to

the client for clarification. After the client clarifies the /ueries everything is resolved and the case goes to

the next stage i.e. to the committee.

E. -A('-0 his is a committee of 6 people namely the ;', the F', the ', and the various risk

heads. he case is presented In front of them, their views, challenges and observations are put across and


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the final decision is made so as to approve the funding to the customers. Any changes regarding the

interest rate or the funding amount are altered.

9. Sanction letter and documentation0 At this stage the documents have to be executed i.e. signed by the

client and the debtors compulsorily in front of a relationship manager from India Factoring.

1. (otice of Assignment0 $riefly > things are mentioned in a ('A" Firstly the borrower informs the

debtor that he has taken factoring facility as assignment


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ON THE CLIENTS LETTER HEAD

NOTICE OF ASSIGNMENT

Date:

To,

Dear Sir,

We have availed Trade Finance Facility by way of Standard Factoring Facility from India

Factoring and Finance Solutions pvt Ltd!India Factoring, !th Floor, "aibhav #hamber$,

Bandra%&urla #om'le(, Bandra % )a$t, *umbai +-., a Factoring #om'any in /ndia0

/n order to $ecure the amount$ due and 'ayable under the $aid Factoring Facility , we had

entered into Factoring 1greement with /ndia Factoring and e(ecuted other deed$, $ecurity

document$, underta2ing$ etc in favor of /ndia Factoring0

3nder the $aid Factoring 1greement , we have a$$igned all our 4eceivable$ to /ndia Factoring

on the term$, condition$ and covenant$ a$ $et out therein0

The 1$$ignment of all our receivable$ to /ndia Factoring will be governed and regulated under

Factoring 4egulation 1ct5 6..0

/n light of the $aid a$$ignment, 2indly note the following:

.0 1ll receivable$ due from you to u$ will be a$$igned to /ndia Factoring0

60 The 'ayment$ of all our 're$ent and future invoice$ rai$ed on you are to be made to /ndiaFactoring0

70 1ll 'ayment$ after


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Name of the Ban2 : 1(i$ Ban2 td

1ddre$$ : Bandra &urla #om'le(, Bandra )a$t, *umbai %+-.

Ty'e of 1ccount : ## 1ccount

1?c No : 1,,(2(((-+L23+4

/FS# #ode' 5TI4(((()2(

+0 1ny communication from u$ for change in the above 'ayment term$ $hall be mandatory

accom'anied by No @bAection certificate ? written con$ent from /ndia Factoring0

-0 We $hall continue to be liable to you for $u''lie$? uality and uantity of good$ etc agreed to

be made by u$ to you a$ 'er the agreed term$0

1ny uerie$, claim$ and?or di$'ute$ ari$ing after recei't of merchandi$e from u$ $hould beaddre$$ed to u$ with a co'y thereof to /ndia Factoring0 1'art from the change in 'ayment

'ractice, the relation$ between u$ remain unaltered and you $hould continue to 'lace order$

with u$0 We feel $ure that thi$ change in 'rocedure will be of mutual benefit0 /f you have any

ue$tion$, 'lea$e contact u$, or /ndia Factoring, in thi$ re$'ect0

Accordingl67 8e re9uest 6ou to :indl6 %a:e all "uture pa6%ents a"ter t;e date %entioned

a


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!ft Floor, "aibhav #hamber$, Bandra%&urla #om'le(,

Bandra % )a$t, *umbai +-.

Secondly, it mentions that all the overdraft payments must be made in *unCab (ational $ank%*($& a?c noonly

+astly, if there are any changes in the mode of payment the debtor must inform India Factoring.

3. First *ayment? 4isbursement" $efore the funding is done the company waits for the debtor to make one

unfactored payment to India Factoring as an assurance from the debtor in order to gain faith and then the

disbursement is done respectively.

factoring as an important tool for working capital management

Documents