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L.N. Revathy

Coimbatore , Sept. 26

FACTORING business in the country has been slow to take off. Even while the service providers in this space continue to register an average year-on-year growth of over 20 per cent, they do not foresee a good jump in business volumes until the draft legislation on `Factoring of Debts due to Industrial Commercial Undertaking Bill ' becomes an Act. `The Bill has been pending since 2001,' says Mr G.R. Seshadri, Managing Director, Canbank Factors.

In an interview to Business Line, he attributed the sluggish takeoff to the lack of awareness about such a facility. `It is the process of purchasing the debts/receivables from a business or company. The factor or agent takes the responsibility for the credit risk and collects payment for the invoices at a later date. Many companies use this method to obtain short-term funds and increase liquid funds,' he explained.

The Bill, when passed, is expected to clearly define the obligations of the participants, namely, the customer, the service provider (factor) and banks and simplify recovery. Excerpts:

What is the market size for factoring business?

The potential is not only huge but growing. Factoring volumes, however ,have hovered around Rs 5,000 crore for the last two years. With the advent of new players in the export-factoring segment, the volumes could surge during the current year.

Despite the potential, why do you think it has not picked up?

First, the awareness level is pretty low. Secondly, the existing legal framework does not safeguard the interest of the `factor' as in the developed countries. There, the buyer (customer) is discharged only when he effects the payment to the `factor'. He (the buyer) is not permitted to adjust his dues against factored invoices.

Also, the commercial banks, instead of considering our services as `complementary', treat `factors' as `competitors'. If you look at our business volume, it is miniscule compared to the banking industry volumes.

The other problem is that neither the Government/the Public Sector Undertakings register the Power of Attorney nor give an undertaking letter to effect `direct payment' to factors. (This is a prerequisite for factoring). And factoring, after all, is a single product company.

What is your growth strategy and target?

Factored volumes grew from Rs 1,578.97 crore in 2003-04 to Rs 2,026.38 crore in 2004-05, accounting for a 28.34 per cent rise. We are targeting a 36 per cent growth this fiscal. We have achieved Rs 940 crore during the first five months of the current fiscal. Volume-wise, we plan to achieve Rs 2,750 crore and deploy Rs 575 crore this year.

Our board has given the nod for expanding our operational network. We have eight branches now. We are planning to open a branch in Ludhiana very soon, and may be one more branch in some industrial town before the end of the current fiscal.

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