Factoring

Factoring is a financial transaction and a form of debtor finance in which a business sells its trade receivables (outstanding invoices) to a third-party financial institution — called a factor — at a discount, in exchange for immediate cash. Rather than waiting 30, 60, or 90 days for customers to pay, the business receives an upfront advance (typically 70–90% of the invoice value) from the factor, who then collects the full payment from the customer when the invoice falls due, retaining a fee for the service. Factoring provides immediate liquidity to businesses, improves working capital, and transfers the credit risk of collection to the factor. It is particularly valuable for MSMEs, exporters, and companies with long debtor cycles. In India, the Factoring Regulation Act, 2011 and RBI's TReDS (Trade Receivables Discounting System) platform have formalised the factoring market. For investors on Ventura Securities analysing SME-lending NBFCs, trade finance companies, and export-oriented businesses, factoring activity and receivables monetisation are important indicators of a company's liquidity management strategy and working capital health.