Definition: The Non-Banking Financial Company-Factors (NBFC-Factors) is yet another financial company that deals in the principal business of Factoring. The Factoring is a financial transaction wherein the company sells its bills receivables i.e. invoices to a third party called as “factor” at a discount.
As per the RBI, the company can be registered as a non-banking financial company-Factors if it complies with the following conditions:
- The company seeking registration as NBFC-Factor must have a minimum net owned fund (NOF) of Rs 5 Crore.
- In the case of an existing company that want to get registered as NBFC-Factor but does not fulfill the minimum criteria of NOF i.e. 5 Crore may approach the bank to seek time to comply with the requirement.
- The company must ensure that the assets in the factoring business must constitute at least 50% of its total assets and also, the income derived from the factoring business should not be less than 50% of its gross income.
- The Non-Banking Financial Company registered with the bank and is already into the factoring business that constitutes less than 75% of its total assets/income is required to submit the bank a letter of its intention to whether become a factor or unwind the business totally. The company is required to raise the asset/income percentage as required or unwind the factoring business within two years from the date of the notification. Thus, NBFC shall be granted to function as a factor only if it meets the required percentage of asset/income percentage.
The factoring is done so that business can receive cash quickly against the invoices rather than waiting for the time period (usually, 30 to 60 days) the customer makes the payment.