Reserve Bank of India has launched an application name Complaint Management System (CMS) on its...
NBFC Factoring means a Non-Banking Financial Company satisfying the following Principal Business Criteria’s:
The Factoring Regulation Act, 2011 defines the ‘Factoring Business’ as “the Business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way of making loans or advances or in any other manner against the security interest over any receivables”.
However, credit facilities provided by banks in the ordinary course of business against the security of receivables or any other activity undertaken as a commission agent or otherwise for sale of agricultural produce or goods of any kind whatsoever and other allied related activities are expressly excluded from the definition of NBFC – Factoring Business & its operating ambit.
The Factoring Regulation Act has laid down the basic legal framework for factoring in India.
An entity or an organization not registered with the Bank or been given the Certificate to operate one may not conduct the business of factoring unless it is an entity mentioned in Section 5 of the Act i.e. a Bank or any Body Corporate established under an Act of Parliament or State Legislature, or a Government Company as specified under companies Act, 2013.
Provided that if the debtor is liable to pay the receivable or the business of NBFC – Factoring is situated or established outside India, any assignment of receivable shall be subject to the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) & FDI Rules framed in this behalf.
Any assignee of a receivable shall not be entitled to demand payment of the receivable from the debtor in respect of such receivables unless & until a notice of such assignment is given to the debtor by the assignor or the assignee along with express authority in its favors granted by the assignor.
Where a notice of assignment of receivable is given by the assignor or the assignee, as the case may be, the debtor on receipt of such notice, shall make payment to the assignee and payment made to such assignee, discharge of any obligation in relation to the receivables specified in the notice shall fully discharge the debtor making the payment, from corresponding liability in respect of such payment.
Henceforth, factoring forms a significant part of a business, especially those businesses which are giant in size& have larger infrastructure covered. If used wisely and to the benefit of the company, it can help the business outperform on a financial forum.
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