Export factoring with recourse basis

The RBI has recently approved a scheme proposed by the SBI FACS for providing export factoring with recourses basis to its clients. The modalities of the scheme are:

The exporter should submit to SBI FACS a list of his customers (importers) with adequate details together with his credit line requirements, which will select an import factor based in the customers’ country who will rate the importer and intimate the results to it. The Indian exporter would apply for a credit limit in respect of the overseas importer. The import factor will grant the credit line based on the credit worthiness of the overseas importer. The exporter will then enter into an export factoring agreement with the export factor (SBI FACS). All export receivables will be assigned to it who will in turn assign them to the respective import factors. When shipping goods, the exporter should ensure that each invoice is payable to a specific factor in the importer’s country. Copies of the invoices and shipping documents will be sent to import factor through SBI FACS who will make prepayment to the exporter against the approved export receivables. On receipt of sale proceeds from the buyer on the due date of the invoice, the import factor will remit the funds to the SBI FACS. The SBI FACS will convert the foreign currency remittances into rupees and transfer the proceeds to the exporter. A service fee of 0.5 – 2 per cent of the value of the invoice will be levied. If the importer is unable to pay the proceeds of the goods exported, the import factor will pay the receivables to the export factor, 100 days after the due date. All such incidents are to be reported by the SBI FACS to the RBI in half yearly statements indicting the reasons for delay or non-payment by the importer. The SBI FACS would act only as export factor. It is not authorized to act as import factor.

The scheme has yet not become operational.

From the beginning of 1997, for the first time a joint venture company – Foremost Factors Ltd., has commenced offering export factoring to Indian exporters. As the first private sector factoring company, the Foremost Factors Ltd., (FFL) is a joint venture between the Mohan Exports and the Nations Bank Overseas Corporation, as a wholly owned subsidiary of Nations Bank (USA), 20th Century Finance Corporation and the ICDs Group. It would provide the exporter up to 80 percent pre-payment against his account receivables. The remaining 20 per cent would be paid when the full payment is received from the customer / buyer. The exporter would also the additional benefit of open account trading without credit risk, since the FFL would arrange credit risk protection on agreed terms. The FFL is a member of Factors Chain International, a group that includes nearly 120 of the world’s leading financial institutions in 50 countries. Since the FFL uses EDIFACT, the standard International Electronic Data Interchange factoring Network, it can provide speedy and reliable reporting on their overseas account.

Clients: The domestic factoring by the Can bank Factors and SBI FACS is available to all forms of business organizations engaged in manufacturing, service and trading. They include sole proprietary concerns, partnership firms and corporations, the focus being on profit making growing concerns.

Credit Limit: In order to limit the exposure, a ceiling on credit in terms of the value of the invoice to be purchased is generally fixed for each client for medium / small scale units. Presently, the upper limit is in the range of Rs 2–4.5 crore or approximately 15 –25 per cent of the net worth of the client. The period for which debts are factored ranges between 30-90 days.

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