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How SMEs and Startups are generating liquidity from their unpaid invoices

Indian Startup Chamber

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  • June 12, 2020
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IFCI Factors Limited, leading factoring company and subsidiary of IFCI Limited offered Invoice Financing, Factoring services to the SMEs and Startups. Invoice Financing / Factoring will generate cash or liquidity upto 90% of the value of unpaid invoices.


A mechanical engineer by profession Mr. Bikas Kanti Roy is the Managing Director of IFCI Factors Limited, subsidiary of IFCI Limited. He also holds the associate membership of Chartered Institute of Management Accountants (CIMA), UK. Mr. Roy past assignments include association with Zacks Research Pvt. Ltd., Industrial Investment Bank of India Ltd and Steel Authority of India Limited (SAIL).


To know more about the IFCI Factors Limited and the Factoring services, team of Chamber of Startups sat down with Mr. Bikas Kanti Roy, Managing Director of IFCI Factors Limited. What follows is an edited version of the conversation.


01.  What was the support from the family and what were the challenges during your career from joining to becoming of MD of IFCI Factors Limited?


From my family front, I have been receiving full support. I am staying out of station away from my family for career progression, which has been possible due to the support from family.


This is my second term as MD, IFCI Factors Limited (IFL). During the first term of my MD-ship, primary challenges were mounting NPA and consequent losses due to provisioning. In addition, the corporate governance structure, systems and process were very weak or rather non-existent. So, the primary challenge was to minimizing NPA. Putting in place appropriate governance structure and introducing SOPs and appropriate credit culture including introduction of new risk model and doing away with riskier variants of factoring products. 

 

02. What are your views about the stimulus package announced by the Hon’ble Finance Minister? Whether the stimulus package is enough for the MSMEs and to revive the country’s economy? The role of Factoring is very important to support and revive the MSMEs’ How IFCI Factors sees this opportunity?


Rs.20 Lac Cr stimulus package announced by FM is primarily in form of non-cash component but providing adequate liquidity in systems through Banks/FIs and other channels. So, it basically has minimum impact on fiscal front. Through guarantee provided by GOI for MSME loan and fully or partially guaranteed loan scheme for NBFCs, etc. would increase the Govt.’s contingent liabilities

.

  • Collateral free automatic loan of Rs.3 lac cr to standard MSME – these loans have been a tenure of 4 years to be availed by October 31, 2020 and do not need any collateral and banks/NBFC extending this credit are to be provided 100% credit guarantee cover. This would likely to help at at-least 45 lacs MSME units.
  • The other measure is Rs.20 K Cr sub-date to stress MSME. This will help at least 2 lac MSME to augment their much needed equity capital, as, this will be treated as equity.
  • Thirdly, Rs.50 K Cr is proposed to be infused by an equity to MSME through fund of funds scheme of SIDBI for which details are yet not cleared.
  • Fourthly, the Govt. has redefined the MSME enterprise and the investment as well as turnover threshold has been increased and both manufacturing and services sector have been kept at par.   This will improve the ambit of enterprises having various benefits under MSME schemes.

Though, these measures will definitely help large number of SMEs, however, pandemic is yet to be over and lot of issues involving supply chain management, remobilization of migrant labors etc. are likely to impact the smooth running of MSMEs, so, it is quite premature to comment on the sufficiency of stimulus package so as to bring the economy back on track. 


The prospect of any kind of lending including factoring depends on state of economy. IFCI FACTORS LIMITED is already into this business for last 2 decades and assets are grown significantly from initial years. For MSMEs, factoring is the ideal kind of lending opportunity as most of the MSMEs do not get adequate financing or no financing at all from formal lending channels like banks/FIS. There are more than 55 million MSME in country out of which only around 1 million is funded with formal sector of funding. So, opportunities are immense, provided appropriate structuring can be done suitably for MSME.


03.  How IFCI Factors Responds to this epidemic? To what extent IFCI Factors prepare for any economic changes? Whether IFCI Factors introduced different products?


While IFCI FACTORS LIMITED followed the Covid 19 related guidelines announced by GOI and Govt of Delhi/ NCR from time to time, it continued to do routine activities including funding to existing clients, working from home and through concall or video conferencing etc. IFCI FACTORS LIMITED is continuously keeping a watch on pandemic situation and accordingly policies are being framed to address the changing demand pattern and requirements. New product will be introduced in course of time and once approved by Board, the same would be intimated to stakeholders.


04. What is Factoring? Please five brief about working of IFCI Factors Limited? How is factoring beneficial to an MSME/Startups compared to traditional bank products like Cash Credit?


Factoring is an ongoing arrangement between the client and the factor, where the sales of goods and services are made on open account terms and the invoices for the same are assigned to the factor regularly for the purpose of funding, collection and sales ledger administration. Advances are made to the client based on agreed prepayment percentages on submission of invoices. Balance payment is made on the receipt of payment from the buyer.

 

IFCI FACTORS LIMITED remains committed to provide the liquidity support (funding) to MSMEs within period of 30 days - Bikash Kanti Roy



05.  How is factoring beneficial to an exporter compared to traditional bank products or credit insurance?


Export factoring is very safe product the way IFCI FACTORS LIMITED does. We being the member of FCI, get cover on export amount through our corresponding factor to importing countries who also get it credit insured. These correspondent factors being very large institutions and FCI being the nodal agency, probability of default is very very low. This mechanism through FCI minimizes the cost of insurance v/s banks who can not avail the facility, since they are not members of FCI.


06. What is import factoring and how has it picked up in India and to what extent?


Import factoring is a financial service that enables you to purchase goods from your overseas supplier on short term credit of upto 180 days on open account terms without the need for opening a letter of credit (LC). Import factoring has not been very popular mode of financing. Import factoring in India has not taken off in India as its fee based service wherein the primary task is underwriting the risk of the buyer (importer) and collection activities. Assuming the credit risk of buyer/ importer is something which has been the domain of large MNC credit insurance companies ( Atradius, Euler Hermes, Coface etc)


07. Government on release of Economic relief package urged to strengthen the supply chain management. Receivables management and supply chain finance for MSMEs is a major challenge? How IFCI Factors can strengthen the supply chain management?

IFCI FACTORS LIMITED as FI does not have direct contribution towards supply chain management of companies. However, necessary liquidity is provided once material is supplied or received by other companies with due acknowledgment.




This Story is being edited by Mr. Sandeep Bisht, Advisor, Chamber of Startups, Industries and Entrepreneurs (India) Council. If you have a Success Story of your business, please write an email to us at media@indianstartupchamber.com or contact Mr. Ashutosh Sharma at 9999500137.  

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