{"id":7275,"date":"2021-08-03T09:22:33","date_gmt":"2021-08-03T09:22:33","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7275"},"modified":"2021-08-03T09:40:35","modified_gmt":"2021-08-03T09:40:35","slug":"factoring-regulation-amendment-bill-2021","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/factoring-regulation-amendment-bill-2021\/","title":{"rendered":"Factoring Regulation (Amendment) Bill 2021: To draw 9000 NBFCs, boost MSME Cash Flow"},"content":{"rendered":"\n<p class=\"has-drop-cap\">On 29<sup>th<\/sup> July 2021, the Rajya Sabha introduced a <strong><em>Factoring Regulation (Amendment) Bill 2021<\/em><\/strong>. This bill will expand the credit facilities for small businesses and aid them in accessing funds from 9000 NBFCs (Non-Banking Financial Companies). The amendments will provide a movement to the economy by giving an effective working capital cycle for <strong><a href=\"https:\/\/swaritadvisors.com\/msme-registration\" class=\"text-primary\">MSMEs<\/a><\/strong>.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a54a1a94f427\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a54a1a94f427\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/factoring-regulation-amendment-bill-2021\/#What_is_Factoring_Business_or_Firm\" title=\"What is\nFactoring Business or Firm?\">What is\nFactoring Business or Firm?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/factoring-regulation-amendment-bill-2021\/#Provisions_of_the_Factoring_Regulation_Amendment_Bill_2021\" title=\"Provisions of the Factoring Regulation (Amendment) Bill 2021\">Provisions of the Factoring Regulation (Amendment) Bill 2021<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/factoring-regulation-amendment-bill-2021\/#Importance_of_the_Factoring_Regulation_Amendment_Bill_2021\" title=\"Importance of the Factoring Regulation (Amendment) Bill 2021\">Importance of the Factoring Regulation (Amendment) Bill 2021<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/factoring-regulation-amendment-bill-2021\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Factoring_Business_or_Firm\"><\/span>What is\nFactoring Business or Firm?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Factoring\nis a monetary transaction in which a company or a firm sells its accounts\nreceivable invoices to a 3<sup>rd<\/sup> party called a factoring firm at a\ndiscount so that it gets immediate money to continue its business. The\nfactoring company or firm pays a percentage of the invoices quickly. Firms often\nfactor in receivables to improve their cash flow. Factoring is different from\nbank loans. In factoring, the importance is on the receivables of the firm\nselling its receivables. A factoring transaction involves three parties.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Provisions_of_the_Factoring_Regulation_Amendment_Bill_2021\"><\/span>Provisions of the Factoring Regulation (Amendment) Bill 2021<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following\nare some provisions of the Factoring Regulation (Amendment) Bill 2021:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-3.png\" alt=\"Provisions of the Factoring Regulation (Amendment) Bill 2021\" class=\"wp-image-7283\" width=\"499\" height=\"259\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-3.png 998w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-3-300x156.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-3-768x399.png 768w\" sizes=\"(max-width: 499px) 100vw, 499px\" \/><\/figure><\/div>\n\n\n\n<ol><li><strong><em>TReDS (Trade Receivables Discounting System) to Register Charges<\/em><\/strong>: TReDS is a digital stage that provides financing of trade receivables of MSMEs (Micro, Small, and Medium Enterprises). The Factoring Regulation (Amendment) Bill 2021 defines that trade receivables are financed via the (TReDS) Trade Receivables Discounting System; the details regarding transactions has to be filed with the Central Registry by the TReDS on behalf of the factor.<\/li><li><strong><em>NBFC Factoring Threshold Relaxation<\/em><\/strong>: Factoring Regulation (Amendment) Bill 2021 amends the Factoring Regulation Act, 2011 with an outlook of broadening the scope of the companies which can engage in factoring business. The current law which provides the Reserve Bank of India the authority to allow <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong> to remain in factoring business only if it were their primary business that is more than half of assets to be deployed &amp; incomes gained from the factoring business. The Factoring Regulation (Amendment) Bill 2021 has removed this threshold and gives the opportunity in this business to more non-bank lenders at a time when small businesses are facing financial tension.<\/li><li><strong><em>RBI to Regulate<\/em><\/strong>: It has authorised the (RBI) Reserve Bank of India to make regulations to permit Certificate of Registration to a factor, filing of transactional details with the Central Registry and all other matters.<\/li><li><strong><em>Alter in Definition<\/em><\/strong>: The bill amends the definition of the assignment, factoring, and receivables business to get them at par with the global definitions.<\/li><li><strong><em>No Time Bound Registration<\/em><\/strong>: It also removed thirty-day time duration for the factors to register details of every transaction entered by them. The registering authority for the transactions is the Central Registry that is established under the <strong><em>SARFAESI Act, 2002<\/em><\/strong><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Securitisation_and_Reconstruction_of_Financial_Assets_and_Enforcement_of_Security_Interest_Act,_2002\"><strong>[1]<\/strong><\/a><\/sup>.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_the_Factoring_Regulation_Amendment_Bill_2021\"><\/span>Importance of the Factoring Regulation (Amendment) Bill 2021<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Allowing Non-NBFC Factors and\nother companies to undertake to factor may raise funds&#8217; supply available to\nsmall businesses or entities. It can cause to decrease the funds&#8217; cost and\nenable greater access to the credit lacking small businesses &amp; also aid\nthem with timely payments against receivables.<\/li><li>It is anticipated to relax the\nAct&#8217;s restrictive provisions and make sure that a robust regulatory oversight\nmechanism is placed via the Reserve Bank of India.<\/li><li>MSMEs faces challenges\nconcerning the delay in receivables, and this bill would help smoother working\ncapital cycle &amp; healthy cash flow. MSMEs would get more accessible liquidity\nwhich will aid in their operation.<\/li><\/ul>\n\n\n\n<p>The\nStanding Committee on Finance has advised that best international practices be\nadopted to bring domestic factoring entities on a par with international peers\n&amp; make credit finance more accessible to MSMEs. Amending the Factoring Act\nand altering the definition of assignment \u201creceivables\u201d and \u201cfactoring\u201d will\nget them in consonance with global purposes.<\/p>\n\n\n\n<p>The\nFactoring Act, 2011 was enacted for controlling the receivables to factors,\nmaking provisions for registration for doing factoring business and the\nparties\u2019 right in a factoring contract. There is a lot of delay in MSMEs\ngetting payment against their bills for supplying to various buyers. This leads\nto locking of working capital &amp; hampering productive activities of MSMEs,\nthe Parliamentary Committee had said in their report. The amendments suggested\nby the Government seek to resolve problems &amp; allow more classification of\nNBFCs to assume factoring business. Factoring credit constitutes only 2.6% of\nthe total official MSME Credit in India. It is estimated that only 10% of the\nreceivable market is currently covered under the official bill discounting\nmethod, while the rest comes under conventional cash credit overdraft\narrangements with banks.<\/p>\n\n\n\n<p>Regardless\nof considerable growth in the past few years, the factoring market only\naccounts for 0.2% of the GDP of India, which is awfully low as compared to some\nemerging economies like China Brazil. The universal factoring market is\nexpected to reach 9.2 trillion dollars by 2025.<\/p>\n\n\n\n<p>The\nhouse panel worried about the necessity for the RBI (Reserve Bank of India) to\nbuild enough regulatory resources to make sure efficient regulation of\nfactoring activities as an enormous number of players might take part in the\nbusinesses with the execution of the new norms.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Factoring Regulation (Amendment) Bill included many pieces of advice or recommendations from the UK Sinha Committee, and later on, the bill was initiated in September 2020 and then mentioned to the standing committee of the house.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/sfurti-scheme\/\">A Complete Guide on SFURTI Scheme<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On 29th July 2021, the Rajya Sabha introduced a Factoring Regulation (Amendment) Bill 2021. This bill will expand the credit facilities for small businesses and aid them in accessing funds from 9000 NBFCs (Non-Banking Financial Companies). The amendments will provide a movement to the economy by giving an effective working capital cycle for MSMEs. What [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7277,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[34],"tags":[788],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7275"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=7275"}],"version-history":[{"count":24,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7275\/revisions"}],"predecessor-version":[{"id":7305,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7275\/revisions\/7305"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7277"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7275"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7275"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7275"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}