Reserve Bank of India (RBI) has issued the Registration of Factors (Reserve Bank) Regulations, 2022 relating to the manner of granting Certificate of Registration to companies which propose to do factoring business.
A factor is an intermediary agent that provides cash or financing to companies by purchasing their accounts receivables. A factor is essentially a funding source that agrees to pay the company the value of an invoice less a discount for commission and fees.Although factoring is a relatively expensive form of financing, it can help a company improve its cash flow. Factors provide a valuable service to companies that operate in industries where it takes a long time to convert receivables to cash—and to companies that are growing rapidly and need cash to take advantage of new business opportunities.
As per the regulations, every company seeking registration as NBFC-Factor shall have a minimum Net Owned Fund (NOF) of ?5 crore, or as specified by the Reserve Bank from time to time.An NBFC-Factor shall ensure that its financial assets in the factoring business constitute and its income derived from factoring business is not less than fifty per cent of its gross income.
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