Keywords: India Factoring, factoring, SME, India Factoring and Finance Solutions, procure to pay, purchase to pay, P2P

Indian SMEs to benefit from factoring boost

Matthew Garrow-Fisher | News | 16 April 2012

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Factoring is becoming a popular way for small businesses to access the working capital they need by selling their invoices to a third party to guarantee payment on time, or early payment.

And it seems to be taking off in India, with one financial company announcing plans to lend more money in this way to organisations and small scale industries in the country.

According to mydigitalfc.com, India Factoring and Finance Solutions, which is headquartered in Mumbai, is planning to up its lending to Rs 10,000 crore (£1.2bn) within the next two years.

During the current financial year it intends to finance some Rs 5,000 crore in invoices, up from the current Rs 2,500 crore, providing valuable help to many small firms.

"Factoring services benefit the small entrepreneurs not only by providing much needed liquidity for their business but also by way of professional debt administration and collection services," said chief executive Sudeb Sarbadhikary.

He noted that at present, factoring makes up just 0.5% of the total credit portfolio in India, compared to between 4% and 5% in developed nations.

However, he predicted that with more players entering the Indian market, this figure is likely to rise to 2% over the next three years.

India Factoring and Finance Solutions is a relative newcomer itself. It has seven branches across the country and is planning to open more branches in the next six months.

In December last year India's government passed a bill to regulate the country's factoring industry and this is expected to attract more new entrants in the months and years to come.

It will create a central registry to record all transactions carried out by factors and will impose penalties for violation of provisions.