The Lok Sabha has passed the Factoring Regulation (Amendment) Bill, 2021 with an aim to liberalize the Factoring Regulation Act, 2011 by widening the scope of entities which can engage in factoring business.
The Bill was introduced in the Lok Sabha on September 14, 2020. It was referred to the Standing Committee on Finance on September 25, 2020 and the Committee's report was tabled in the Lok Sabha on February 3, 2021.
The Factoring Regulation Act, 2011 was enacted to provide for regulating the assignment of receivables to factors, registration of factors carrying on factoring business and the rights and obligations of parties to the contract for assignment of receivables.
Though the very purpose of the said Act was to address the problems of delay in payment and liquidity faced by all enterprises, including micro, small and medium enterprises, the said problems persist. These enterprises continue to face delay in payment against their bills for supplies made to various buyers. Due to this, their working capital gets locked and further production activities by such enterprises get hampered. Therefore, in January, 2019, the Reserve Bank of India had constituted an expert committee on micro, small and medium enterprises under the Chairmanship of Shri U.K. Sinha to suggest long-term measures for the economic and financial sustainability of said sector.
The expert committee has recommended that, (i) non-banking finance companies, other than those non-banking finance companies whose principal business is factoring, should also be permitted to discount invoices on Trade Receivables Discounting System in order to widen the scope of financiers; (ii) the Trade Receivables Discounting System concerned should be permitted to act as agents of financiers for filing registration of charges with the Central Registry as it would bring operational efficiency; and (iii) the time period for registration of invoice and satisfaction of charge upon it should be reduced in order to check possibility of dual financing.
Picture Source :
