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31/07/2021 02:04pm

Factoring Regulation (Amendment) Bill to open a window of opportunity for credit starved MSMEs: Co-founder, Cashinvoice

image Factoring Regulation (Amendment) Bill to open a window of opportunity for credit starved MSMEs: Co-founder, Cashinvoice

New Delhi, Jul 31 (KNN) Welcoming the Factoring Regulation (Amendment) Act 2021, recently passed in parliament, Arun Poojari, Co-founder, Cashinvoice said that it would now open a window of opportunity for credit starved MSMEs.

He said that the act can potentially increase the number of NBFCs offering factoring service to over 9,500 from just seven currently. Allowing NBFCs to do factoring will tap into a vast pool of credit that’s currently unavailable under factoring.

''Unlike traditional invoice financing Factoring puts more weightage on quality of receivables which means widespread access to Factoring will hugely benefit especially the MSME suppliers of the corporate buyers,'' he added.

He further said that the the changes in key definitions ‘Receivable’ as well as what constitutes as ‘Factoring Business’ will make it a lot easier for financing companies to undertake factoring business. This will eventually lead to a boost to the economy by providing an efficient working capital cycle for MSMEs.

''Also, changes in CERSAI registration requirements reduces the burden felt by the factoring entities because of the shorter time window to comply. Most importantly, the act has empowered RBI to make further amendments which will ensure that regulatory authority will have flexibility to carry out changes that are as per the need and changing landscape of the factoring business,'' he concluded.

Parliament on Thursday passed the Factoring Regulation (Amendment) Bill, 2021, to provide relief to the MSME sector and help them in ensuring a smoother capital cycle and healthier cash flow.

The bill which would enable as many as 9,000 non-banking financial companies (NBFCs) to participate in the factoring market, instead of just 7 now, boosting cash flow to small businesses.

Speaking on the bill, the Finance Minister Nirmala Sitharaman said, "It is a very important Bill which will benefit the MSMEs of this country because a difficulty is constantly expressed by the MSME that their receivables are getting delayed.''

"As a result, there is a provision of selling their receivables to a third party. If the third party is going to make an immediate availability of funds, they shall be able to move their business smoothly. There are several such advantages in factoring from payment of the seller," Sitharaman added.

The Factoring Regulation (Amendment) Bill, which was tabled in Parliament last year, was passed on Monday in the Lok Sabha. The bill also removes the requirement of an entity in this business called factor to report every transaction within 30 days. The bill proposes that such finer details will be specified in regulations.

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