Factoring (2)

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is yet to pick up in India. Examine the causes. Also, analyze a case to indicate how fac December 07, 2009

INTRODUCTION Factoring is a type of financial service provided by the specialist organizations. When small scale firms sell on credit basis, collection of receivable poses a problem. In that case factoring organizations play an important role in collection of debtors. Factoring involves sale of receivables to specialized firm, called factors. Factors collect receivables and also advance cash against receivables to solve the client firm’s liquidity problem. For providing their services, they charge interest on advance and commission for other services. In other words, factoring is an arrangement under which a financial institution (called factor) undertakes the task of collecting the book debts of its client in return for a service charge in the form of discount or rebate. The factoring institution eliminates the client’s risk of bad debts by taking over the responsibility of book debts due to the client. The factoring institution advances a proportion of the value of book debts of the client immediately and the balance on maturity of book debts.

DEFINITION “Factoring is a service involving the purchase by a financial organization, called a factor, of receivables owned to manufacturer and distributors by their customers, with the factor assuming full credit and collection responsibilities.” “Factoring is a service of financial nature involving the conversion of credit bills into cash.”

CHARACTERISTICS OF FACTORING 1. Usually the period for factoring is 90 to 150 days. Some factoring companies allow even more than 150 days. 2. Factoring is considered to be a costly source of finance compared to other sources of short term borrowings. 3. Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial

strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers. 4. Bad debts will not be considered for factoring. 5. Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement. 6. Factoring is a method of off balance sheet financing. 7. Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring varies from 1.5% to 3% per month depending upon the financial strength of the client's customer. 8. Indian firms offer factoring for invoices as low as 1000Rs 9. For delayed payments beyond the approved credit period, penal charge of around 1-2% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards).

FUNCTION OF FACTROING Maintenance of sales ledger: - A factor maintains sales Ledger for his client firm. An invoice is sent by the client to the customer, a copy of which is marked to the factor. The client need not maintain individual sales ledgers for his customers. On the basis of the sales ledger, the factor reports to te client about the current status of his receivables, as also receipt of payments from the customers and as part of a package, may generate other useful information. With the help of these reports, the client firm can review its credit and collection policies more effectively. Collection of accounts receivables- Under factoring arrangements factoring institution undertakes the responsibility of collecting the receivables for its client. Thus, the client firm is relieved of the regours of collecting debts and thereby is enable to concentrate on improving the purchase, production, marketing and other managerial aspects of the business. With the help of trained manpower backed by infrastructural

facilities factoring agency systematically undertakes follow up measure and makes timely demand in the debtors to pay the amounts. Credit control and credit protection – Another useful service rendered by a factoring institution is credit control and protection. As a factor maintains extensive information records (generally computerized) about the financial standing and credit rating of individual customers and their track record of payments, he is able to advise its client on whether to extend credit to a buyer or not and if it is to be extended the amount of the credit and the period therefore. Further, the factor establishes credit limits for individual customers indicating the extent to which he is prepared to accept the client’s receivable on such customers without recourse to the client. This specialized service of a factor assists clients to handle a far greater volume of business with confidence than would have been possible otherwise. In addition, factor provides credit protection to his client by purchasing without recourse to him, every debt of approved customers (within the stipulated credit limit) and assumes the risk of default in payment by customers only in case of customer’s financial inability to pay.

Advisory functions – At times, factoring institutions render certain advisory services to their clients. Thus, as a credit specialist a factor undertakes comprehensive studies of economic conditions and trends and thus is in a position to advise its clients of impending developments in their respective industries. Many factors employ individuals with extensive manufacturing experience who can even advise on work load analysis, machinery replacement programs and other technical aspects of a client’s business. Factors also help their client in choosing suitable sales agents/ seasoned personnel because of their close relationships with various individuals and non-factored organizations.

TYPES OF FACTORING FULL FACTORING:- Under full factoring arrangement, a factor renders services f collection of receivables and maintains sales ledgers, credit protection. On the basis of creditworthiness of the firm a monetary limit is fixed up to which trade credit provided by the client will be taken over by the factor without recourse to the client? The liability of the factor is limited only to the defaults arising out of customer’s financial inability to pay. If the payment is withheld for reasons of dispute regarding inherent defect in goods, quality, quantity, counter claim, etc. recourse will be available to the factor against the client. RECOURSE FACTORING:- In this type of factoring the factor does not provide any protection to the client against a customer’s failure to pay debts. It may, therefore, not be necessary for the factor to either approve the customer or fix a credit limit. If the customer does not pay the invoice on maturity for any reason, the factor is entitled to recover from the client the amount paid in advance. MATURITY FACTORING:- This type of factoring involves no financing ab nitio and hence no drawing limit is made available to the client. But the factor administers the client’s sales ledger and renders debt collection services. The amount of each invoice is made over to the client at te end of the credit period on an agreed maturity date, less the factor’s charges. The maturity date is decided upon at the commencement of the agreement by reference to the average-time taken by the client to collect a debt. The maturity date bears no relation to the date on which the receivable is actually due for payment as it is a ‘estimated date of collection. Such factoring could be with or without recourse. If it is without recourse, the amount will be made over to the client regardless of whether the factor has been able to collect the invoice or not. If the debtor becomes insolvent, or proof of insolvency, payment will be made to the client even before maturity. In with recourse factoring, the factor will either pay the client on collection of invoice or on maturity date with recourse later on.

ADVANCE FACTORING:- This kind of factoring institution is prepared to pay for debts in advance of receiving the payment due from the customers. This is only a prepayment and not an advance. A drawing limit is made available to the client as soon as the invoice is accounted for. INVOICE DISCOUNTING INSTITUTION:- Under this arrangement the factor buys all or selected invoices of its client at a discount. The factoring institution does not maintain sales ledger for its client nor undertakes debt collection function. It only provides finance to its client. DISCLOSED FACTORING:- In disclosed factoring client's customers are notified of the factoring agreement. Disclosed type can either be recourse or non recourse. UNDISCLOSED FACTORING:- In undisclosed factoring, client's customers are not notified of the factoring arrangement. Sales ledger administration and collection of debts are undertaken by the client himself. Client has to pay the amount to the factor irrespective of whether customer has paid or not. But in disclosed type factor may or may not be responsible for the collection of debts depending on whether it is recourse or non recourse.

BUYER-BASED FACTORING INSTITUTION:- Buyer-based factoring institution is concerned with factoring all the buyer’s payables. Thus, the factor would maintain a list of ‘approved buyers’ and any claims on such buyer (by any seller) would be factored without recourse to the seller. SELLER-BASED FACTORING:- This type of factoring institution takes over the credit function of the seller entirely. After invoicing its customer the seller Submits a copy of the invoice, the delivery Challan, the buy sell contract and related papers like quality stipulations and test certificate to the factor who takes over the remaining operations like reminding the buyer for payment, maintaining its account and collecting the amount. The seller closes his transaction after assigning the debt to the factor, by treating the transaction as a cash sale. In such a case, the factor is also able to supply additional information to the management, viz; approved, unapproved and disputed claims

outstanding, sales analysis by area, by salesman, by products, etc; excise and sales tax payments and the like. MECHANICS OF FACTORING:- An agreement between the firm selling goods or services and the factor is made to specify the legal obligations and procedural arrangements. When the firm receives an order from a buyer, a credit approval slip is written and immediately sent to the factoring concern for a credit check. The factor can give his decision quickly because he maintains elaborate credit files on selected companies. If the sale is approved by the factor, the goods are dispatched and invoice is clearly marked with an inscription notifying the buyer of the goods that the account has been sold and the payment be made direct to the factor. Notification is a distinctive feature of factoring and not found in any other form of financing receivable. It is the keystone upon which the services of factor are based. Invoi credit Payment Pays Pays Submit the sale the amount (In Custom Factor Client recourse up of ce balance invoice to goods 80% type customer erthrough client) amount pays initially copy

1. Despatching invoice to the buyer after credit checking by the factor. 2. Making payment to the factor on the maturity date of the invoiced debt by the buyer.

3. Factor remitting money received to the seller after deducting factor fee in the case of service factoring or remitting the balance after deducting interest and service fee in the case of service and finance factoring. As may be seen from the above diagram that once a routine is established, Continuous circular flow of goods and funds Lakes place between the seller, the buyer and the factor. Factoring arrangement, thus helps in speeding up the movement of accounts receivable into cash.

TERMS AND CONDITIONS ➢ Assignment of debt in favor of the factor,

➢ Selling limits for the client, ➢ Conditions within which the factor will have recourse to the client in case of nonpayment by the trade customer, ➢ Circumstances under which the factor for his services, say for instance, as a certain percentage on turnover, ➢ Interest to be allowed to the factor on the account where credit has been sanctioned to the supplier, and ➢ Limit of any overdraft facility and the rate of interest to be charged by factor.

ADVANTAGES Benefits of Factoring to Clients 1) Under the factoring arrangement the client receives prepayment upto 80-90 percent of

the invoice value immediately and the balance amount after the maturity period. This helps the client to improve cash flow position which enables him to have better flexibility in managing working capital funds in an efficient and effective manner.

2) If the client avails the services of the factor in respect of sales ledger administration and collection of receivables, he need not have any administrative set up for this purpose. Naturally this will result into a substantial saving in time and cost of maintaining own sales ledger administration and collecting receivables from the customer. Thus, it will reduce administrative cost and time. 3) When without recourse factoring arrangement is made, the client can eliminate the losses on account of bad debts. This will help him to concentrate more on maximizing production and sales. Thus, it will result in increase in sales, increase in business and increase in profit. 4)

The client can avail advisory services from the factor by virtue of his expertise and experience in the areas of finance and marketing. This will help the client to improve efficiency and productivity of his organization. Besides this, with the help of data base, the factor can readily provide information regarding product design/mix, prices, market conditions etc., to the client which could be useful to him for business decisions.

The above mentioned benefits will accrue to the client provided he develops a better business relationship with the factor and both of them have mutual trust in each other.

DISADVANTAGES 1) Image of the client may suffer as engaging a factoring agency is not considered a good sign of efficient management. 2) Factoring may not be of much use where companies or agents have one time sales with the customers. 3) Factoring increases cost of finance and thus cost of running the business. 4) If the client has cheaper means of finance and credit (where goods are sold against advance payment), factoring may not be useful.

Case 01:

CASE STUDY OF SUNLIGHT INDUSTRIES LTD.

Sunlight industries ltd. manages its account receivables by its sales and credit department. The cost of sales ledger administration stands at Rs 9 crore annually. It supplies chemicals to heavy industries. These chemicals are used as raw material for further use or are directly sold to industrial units for consumption. There is a good demand for both the types of uses. For the direct consumers, the company has a credit policy 2/10, net 30. Past experience of the company has been that on avg. 40% of the customer avail of the discount while the balance of the receivables are collected on an avg. 75 days after the invoice date. Sunlight industries also has small dealer networks that shall the chemicals bad debt of the company are currently 1.5% of total sales. Sunlight industries finances its investment in debtors through a mix of bank credit and own long term funds in the ratio of 60:40 current cost of bank credit and long term funds are 12% and 15% respectively. There has been a consistent rise in the sales of company due to its proactive measures in cost reduction and maintaining good relations with dealers and customers. The projected sales for the next year are Rs 800 crore of 50% from last year. Gross profits have been maintain at a healthy 22% over the years and are expected to continue in futures. With escalating cost associated with the in-house management of debtors coupled with the need to unburden the management with the task so as to focus on sales promotion, the CEO of Sunlight Industry examine the possibility of outsourcing its factoring service for managing its receivables. He assigns the responsibility to Anita Guha, the CFO of Sunlight. Two proposals the details of which are given below are available for Anita’s consideration. Proposal from Canbank Factors Ltd.: The main element of the proposal are : i. Guaranteed payment within 30 days ii. Advance, 88% and 84% for the recourse and non-recourse arrangement respectively iii. Discount charge in advance 21% for recourse and 22% without recourse iv. Commission, 4.5% without recourse and 2.5% with recourse

Proposal from Indbank Factors: i. Guaranteed payment within 30 days ii. Advance 84% with recourse and 80% without recourse iii. Discount charge upfront, without recourse 21% and with recourse 20%

iv. Commission upfront, without recourse 3.6% and with recorse 1.8%

The opinion of the chief Marketing manager is that in context of the factoring arrangement his staff would be able to exclusively focus on sales promotion which would result on additional sales of Rs 75 crore.

FINANCIAL ANALYSIS OF RECEIVABLES MANAGEMENT ALTERNATIVES (Rs crore)

(A) In house Management : Cash discount(Rs 800 croreX0.40X0.20)

Rs 6.4

Bad debts (Rs 800 croreX0.015)

12.0

Opportunity Cost (Forgone contribution on lost sales) [Rs 75 croreX0.205 net of bad debts]

15.4

Avoidable administrative and selling expenses

9.0

Cost of investment in receivables ©

14.4

Total Cost

57.2

© Avg. collection period (0.40X10days)+(0.60X75days)=49 days Investment in debtors: (Rs108.9X0.60X0.12)+ (Rs108.9X0.40X0.15)= Rs 14.4 crore (B) Canbank factors Proposal: With recourse

Without recourse

Factoring Commission (Rs 875 croreX0.025)

21.9

-

(Rs 875 croreX0.045)

-

39.4

Discount charge(Rs 750.7*croreX.21X30/360)

13.1

-

(Rs 701.9**croreX.22X30/360)

-

12.9

[(Rs 875 crore-Rs750.7 crore)X0.15X30/360]

1.6

-

[(Rs 875 crore-Rs701.9 crore)X0.15X30/360]

-

2.2

36.6

54.5

Cost of long term funds invested in debtors:

*Amount of Advance=0.88X(Rs 875crore – Rs 21.9 crore)= Rs 750.7crore **Amount of Advance=0.84X(Rs 875crore – Rs 39.4 crore)= Rs 701.9crore

(C) Indbank Factor Proposal

With recourse

Without recourse

15.7

-

Factoring Commission (Rs 875 croreX0.018)

-

31.5

(Rs 875 croreX0.036)

12.0

-

Discount charge(Rs 721.8£croreX.20X30/360)

-

11.8

Cost of long term funds invested in debtors:

1.9

-

[(Rs 875 crore-Rs721.8 crore)X0.15X30/360]

-

2.5

[(Rs 875 crore-Rs674.8 crore)X0.15X30/360]

29.6

45.8

(Rs 674.8££croreX.21X30/360)

£

Amount of Advance=0.84X(Rs 875crore – Rs 15.7 crore)= Rs 721.8crore

££

Amount of Advance=0.80X(Rs 875crore – Rs 31.5 crore)= Rs 674.8crore

Decision Analysis: Recourse Factoring Particulars

Canbank

Indbank

Benefits (Rs 57.2-Rs 12 Bad debts to be born by company)

45.2

45.2

36.6 Costs

8.6

Net Benefits

29.6 15.6

Decision Analysis: Non-Recourse Factoring Particulars

Canbank

Indbank

Benefits (Rs 57.2+Rs 1.1Bad debts to be borne by factor)

58.3

58.3

Costs

54.5

45.8

Net Benefits

3.8

12.5

Advice: My advice to the CFO of Sunlight Industries would be to accept the proposal of Indbank Factors for recourse factoring.

Case 02:

A STUDY GROUP ON FACTORING

The Reserve Bank of India constituted a study group in January 1988 under the chairmanship of Sri Kalyana Sundaram to examine the feasibility and mechanics of starting factoring organisations in the country and to make recommendations regarding their Constitution, organisational set up, scope of activities and related matters as also to look into the feasibility of export factoring. The study group submitted its report in January 1989 and the important recommendations are setout below: There is sufficient scope for introduction of factoring service in India which would be complimentary to the services provided by banks. The demand for factoring services would come from engineering, textiles, consumer durables, automobile ancillaries, chemicals, etc. Factoring organisations may be promoted individually by the leading public sector banks or jointly by a few among them. To start with there should be only four or five organisations formed on Zonal basis. Factoring business could also be taken up by the proposed small Industries Development Bank of India. The various ways in which factors could raise funds are: (a) Promotors’ contribution towards equity; (b) Raising equity capital from public;

(c) Public deposits; (d) Issue of debentures to public; (e) Line of credit from Banks; and (f) Borrowings from short-term money market. The factors should attempt a mix of the above sources so that their cost of funds does not exceed 13.5 per cent. The Reserve Bank of India may consider to allow them to raise funds from the Discount Finance House of India. The pricing for financing services offered by factors may be around 16 per cent per annum and the aggregate price for all other services may not exceed 2.5-3 per cent of the debts serviced. The pricing of various services by factors would depend on various aspects such as credit worthiness of the customer, his track record, quality of portfolio turnover, an average size of invoices, etc.

FACTOTING ORGANISATION IN INDIA India's first factoring company was set up jointly by Can bank financial services Ltd. , Rashtriya chemicals and Fertilizer Ltd. Reserve bank of India permitted Canara bank to set-up Corporate subsidiary with Rs. 10 crore capital in cooperation with Andhra Bank and Small Industries Development Bank to render factoring services in southern region. State Bank of India and Punjab and Sind bank have been permitted to form subsidiary to provide factoring services in northern region. With a view to catering to the needs of eastern region United Commercial Bank, United Bank o India and Allahabad Bank have been permitted to float subsidiary with Rs. 5 crores. The entry of factoring agencies in Indian financial markets has created fear among the bankers that they may loose the entire account. However, this fear is misplaced. Customers of one bank have freely gone to merchant banking, leasing or volume capital subsidiaries of some other banks and utilized their services. There are hardly any cases, where the accounts were shifted.

ADVANTAGES OF FACTORING (Indian Perspective)

Reduction of current liabilities:- From the factoring proceeds of Rs 64 lakh, the bank borrowings are liquidated to the extent of Rs 40 lakh. The balance of Rs 24 lakh can be used by the client for paying off other current liabilities comprising of trade creditors for goods and services. Creditors for expenses, loan installments payable, statutory liabilities and provisions. The client may meet any of these obligations with the balance of Rs 24 lakh. The net effect is to reduce current liabilities by Rs 64 lakh. Improvement in current ratio:- as the factoring transaction is of the balance sheet, it removes from the asset side receivables factored to the extent of the prepayment made and on the liabilities side, the current liabilities are also reduced. Higher credit standing:- there are several reasons why factoring should Improve a client’s standing. With cash flow accelerated by factoring, the client is able to meet his liabilities promptly as and when they arise. The factor’s acceptance of the client’s receivables itself speaks highly of the quality of the receivables. In the case of non-recourse factoring, the factor’s assumption of credit risk relics the client, to a significant extent, from the problem of bad debts. This enables him to minimize his bad debts reserve. Improved efficiency:- In order to accelerate cash flow, it is essential to ensure the flow of critical information for decision making and follow-up and eliminate delays and wastage of man-hours. This requires sophisticated infrastructure for high level specialization in credit control and sales ledger administration. Small and medium-sized units are likely to face a recourse constraint in this area. Factoring is designed to place such units on the same level of efficiency in the areas of credit control and sales ledger administration as that of the more sophisticated large companies. More time for planning and production:- In any business concern, it is inevitable that a certain proportion of management time has to be diverted to credit control. Large companies can afford to have special departments for the purpose. However smaller units cannot afford it. The factor undertakes the responsibility for credit control, sales ledger administration and debt collection problems. Thus, the client can concentrate on functional areas of the business line planning, purchase, production, marketing and finance. Reduction of cost and expenses:- Since the client need not have a special administrative setup to look after credit control, he can have the benefit of reduced overheads by way of

savings on manpower, time and efforts. With the steady and reliable cash flow facilitated y factoring, the clients have many opportunities to cut costs and expenses like taking supplier’s prompt payment and quantity discounts, ordering for materials at the right time and at the right place, avoidance of disruption in the production schedule, and so on. Additional source:- The supplier gets an additional source of funding the receivables which eliminates the uncertainty associated with the collection cycle. More importantly, funds from a factor is an additional source of finance for the client outside the purview of bank credit.

PROBLEMS IN FACTORING SERVICES The proposed factoring firms in order to extend their services efficiently and effectively need reliable and upto date information regarding the financial standing, market reputation and business prospects of firms engaged in buying and selling of goods and services. The factor cannot afford to associate itself with a concern, whose management is basically unsound and whose operations over recent years disclose an unprofitable trend. The factoring firms will, therefore, be required to stipulate financial criteria for clients to the eligible for factoring. Credit appraisal of debtors is another important aspect, which necessitates an in-depth study of the financial position of debtors. But in India at present there are no credit rating agencies. Therefore, the factoring firms will be required to computers their operations so that enough data on payment behavior of large number of firms can be generated. The factoring arrangements are considered to be relatively expensive way of obtaining finances as compared to other sources. This particularly when the factoring arrangement is without recourse. Since, the factor bears the risk of default it is natural that he charges more for his services to compensate the risk. But the factoring firms will have to compete with banks in financing receivables. Hence, they will be required to operate on thin margins to attract potential customers. Imposition of stamp duty on the instrument of transfer is another problem. The study group is of the view that to make factoring economically viable, it is essential that assignment of book debts in favour of factor is exempted from stamp duty. State governments may be advised to remit the stamp duty.

The concept of factoring in India is quite new. Many traders and manufacturers, particularly belonging to small and medium sectors are not fully aware of the concept of factoring. Therefore, it is necessary to educate them about the nature of factoring, types of services offered by the factoring organizations and also the benefits that would accrue to them if they take services of factor in the collection of receivables.

FACTORING SERVICES YET TO GAIN POPULARITY Factoring is of great help to small exporters, manufacturers and service providers. Factoring also involves checking the creditworthiness of buyers, assuming credit risk, protection against write-offs, collection and management of receivables and immediate cash advances against receivables. As one SME official puts it, factoring offers freedom from bad debt and provides cash to finance future growth. But this form of financing is yet to become popular with business and industry in India after its introduction more than 15 years ago. As per Factors Chain International, a global umbrella organisation of factoring companies, India with just eight companies clocked a total turnover of Rs 19,860.5 crore in 2006 way below Japan’s Rs 4,15,789.1 crore Taiwan’s Rs 2,23,152. 6 crore and China’s Rs 7,97,77.1 crore in Asia. The Indian factoring market has grown by 176 per cent from Rs 7,196.7 crore to Rs 19,860.5 crore between 2002 and 2006. Global leaders are the UK, France and Italy. India accounts for 0.3 per cent of the world turnover. Even among Asian countries, India’s share works out to an insignificant 2.37 per cent. It is estimated further that the factoring market would grow to reach a volume of Rs 45,944 crore by end-2007. Given the vast size of the Indian SME sector, factoring, which is getting qualitatively revamped from time to time by newly updated product lines, is expected to grow in the long run. According to HSBC, India has climbed to the third position in the group’s total factoring business below the UK and Hong Kong.

ROADBLOCKS A World Bank study says weak contract enforcement institutions and tax, legal, and regulatory impediments will hamper factoring services. “Factoring generally requires good historical credit information on all buyers; if unavailable, the factor takes on a large credit

risk.” It also points out that fraud represents another big problem in this industry (e.g. bogus receivables and non-existent customers). For factoring to develop, it is imperative that an enabling legal environment be created and the Factoring Bill be passed in Parliament. It is also seen that a lot of weak companies would actually be able to tide over their liquidity problems if the receivables are acceptable to the factoring companies and which could be factored. Assignment of debt is still a cumbersome process and involves stamp duty which again is a State level subject and there is no uniformity in the rates of stamp duty across States. Moreover, every time a debt has to be assigned to the factor and stamp duty paid on the transaction, which has the potential of making the proposition expensive for the client. Most of the developed countries have implemented clear laws related to assignment/transfer of debt, bankruptcy, debt recovery, etc. Additionally in India, access to information on companies, their repayment performance with the banking system, etc is thinly available, which results in lack of information to decide on credit. Factoring in its true sense is factoring without recourse to the client. This may not be possible in India unless credit insurance is introduced in the country. In most of the Western countries, factoring is done without recourse, as they have the facility of credit insurance from insurance companies. Some of the factoring companies are also not happy with their status as non-banking finance company (NBFC). Factoring companies can’t initiate summary proceedings. There is no protection under either Debt Recovery Tribunal (DRT) or the Securitisation Act. Banks should also see factoring as a product that is complementary and improves the risk profile of the receivables.

CONCLUSION Thus, factoring as a tool for assisting traders and manufacturers in the matter of financing and collection of receivables has an important role to play in a country like India, where the bill market has not been systematically developed. The development and growth of these organizations on healthy lines will require legislative as well as other forms of support from Central and State Governments in the matters relating to exemption of stamp duty’s and recovery procedures in the case of factored debts. It may also be necessary to set up suitable

machinery to analyze and review the operation of proposed Factoring firms so that the obstacles may be identified.