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What is Factoring in Financial Services?

Factoring is a dynamic financial solution tailored for businesses to optimize their cash flow by converting receivables into immediate liquidity. 

Tata Capital’s Factoring services allow seller to sell outstanding invoices at a discount, ensuring timely access to funds. This innovative offering helps streamline operational expenses, invest in growth, and reduce credit risks. 

With Tata Capital’s tech-enabled platforms and customized support, you can efficiently manage receivables, strengthen business liquidity, and focus on expanding your business network.

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How Does Factoring Work?

Factoring is a financing solution that helps businesses improve cash flow by converting their unpaid invoices into immediate funds. Instead of waiting for customers to pay, businesses can access working capital quickly through this process.

First, a business provides goods or services to its customers and issues invoices with a payment period. The business then submits these invoices to Tata Capital for Factoring. After verifying the invoices, we advance a major portion of the invoice value to the business. Once the customer pays the invoice amount, the remaining balance is released to the business after the applicable charges are deducted.

This process helps businesses maintain steady cash flow and manage daily operations more efficiently.

Factoring Finance Charges & Rates

Particulars Channel Finance
Customer ROI 9.00% - 21.00%

Processing Fees

Minimum 1% of Sanctioned Amount
Stamp Duty As per Stamp Duty Circular, Varies from State to State
Foreclosure Charges Upto 6%

Penal Charges

Default in payment of interest and/or principal amounts, Below charges on the defaulted amount

Overdue Days Penal Charges
1-30 days 4% p.a
31-60 days 8% p.a.
61- 90 days 12% p.a.
Greater than 90 days 24% p.a

(ii) Dishonour Charges: Rs. 670/- (Rupees Six Hundred and Seventy Rupees only) for every Cheque/ Payment Instrument/ ECS Dishonour.

(iii) Non-creation/perfection of security: @ 2% on the outstanding principal amount will be charged for the period of delay in respect of delayed/non-submission of security/collateral related documents and non-perfection of security.

*Charges to be paid along with applicable Tax

Other Applicable Charges

Description Periodicity Penalty Amount
Delayed/non submission of stock statement To be submitted Quarterly by 10th of every Calendar Quarter. Additional one time charge of Rs 20,000/- per Quarter

Delayed First Insurance cover note and non renewal of Insurance on due date

First Insurance:- within 30 days from disbursement date.

Renewal : as and when due

 Additional one time charge of Rs 20,000/- per financial year
Non adherence of financial covenants’ of sanction letter At the time of Review /Renew of account Additional one time charge of Rs 20,000/- per financial year
Documentation charges Rs 5,000/-
Stock Audit charges Rs 5,000/-
ROC and CERSAI filling Rs 5,000/-
Valuation charges As per actuals
TSR fees / Title search fees As per actuals
Security trust fees As per actuals

Charges to be paid along with applicable Tax

Benefits of Factoring Finance for Businesses

Here’s why you should choose Tata Capital to get a Factoring for your business:

  • Convert your receivables into instant cash, maintaining uninterrupted business operations with Seamless Cash Flow Management

  • Transfer the credit collection responsibility to Tata Capital, minimizing the risk of payment delays, substantially reducing the credit risk.

  • Benefit from fast approvals and disbursals, ensuring your liquidity needs are met promptly.

  • Strengthens relationship.

Types of Factoring in Finance

Factoring services in India are structured across several types, each suited to different business models and risk preferences:
 

Type Description Risk of Non-Payment
Recourse Factoring Business retains risk if the buyer defaults With the business
Non-Recourse Factoring

Factor absorbs buyer default risk

 With the factor
Domestic Factoring For invoices raised for buyers within India Varies by structure
Export Factoring For cross-border trade receivables Managed via a two-factor system
Disclosed Factoring Buyer is informed of the Factoring arrangement Either party
Undisclosed/Confidential Buyer is not notified; business collects payments With business


Selecting the right type of Factoring depends on your buyer relationships, transaction volumes, and appetite for credit risk. Non-recourse Factoring offers the highest protection but typically comes at a higher cost.

Eligibility Criteria for Factoring Finance Services

To avail Factoring finance, businesses generally need to meet the following criteria:

  • Minimum 1–2 years of business operations with consistent invoicing activity.

  • Invoices must be raised against creditworthy corporate or institutional buyers.

  • The business must not have disputed or legally contested invoices in the submitted pool.

  • Valid GST registration and up-to-date compliance filings.

  • KYC documentation for the business entity and its promoters.

  • Clean credit history with no major defaults or write-offs.

Key Industries That Benefit Most from Factoring

Factoring finance is particularly well-suited to sectors where payment terms are extended and receivable volumes are high:

  • Manufacturing and ancillary industries have long buyer credit cycles.

  • Textile and apparel exporters dealing with overseas buyers.

  • FMCG and consumer goods distributors managing large distributor networks.

  • Healthcare equipment and pharma suppliers to hospitals and government institutions.

  • IT services and staffing companies with deferred payment contracts.

  • Construction material suppliers to large project developers.

Other Working Capital Solutions

At Tata Capital, we provide several types of working capital loans to cater to the precise needs of business owners. You can choose from the following working capital solutions:

Channel Finance

Get a working capital loan to finance your channel partners, such as distributors, dealers, etc. You can use these funds to purchase raw materials for your business.

Know More
Channel Finance Channel Finance

Invoice Discounting

Get access to finances against your unpaid invoices. It can help you tackle cashflow shortages and meet the growing demands of your business.

Know More
Invoice Discounting Invoice Discounting

Working Capital Demand Loan

Get additional funding up and over your working capital loan. With Tata Capital Working Capital Demand Loan, you can get easy financing to pay for additional business expenses.

Know More
Working Capital Demand Loan Working Capital Demand Loan

Factoring

Unlock instant cash flow by selling your receivables (invoices) at a discount through Tata Capital’s factoring solution. With this, you can access working capital to meet business needs without waiting for customer payments.

Know More
Factoring Factoring

FAQ

What is Factoring finance, and how does it help businesses?

Factoring finance allows businesses to sell unpaid invoices to a financial institution for immediate funds. It improves cash flow, helps manage working capital, and ensures smoother day-to-day business operations.

What are the charges for Factoring services in India?

Factoring charges generally include a service fee and a discount fee on the invoice value. The exact cost depends on factors such as the invoice amount, the customer's credit profile, and the payment tenure.

How is factoring different from business loans and invoice discounting?

Factoring involves selling invoices to receive immediate funds, while business loans provide a fixed amount that must be repaid. Invoice discounting uses invoices as collateral without transferring ownership.

Which industries or businesses can use factoring finance in India?

Factoring finance is commonly used by businesses with regular invoicing, such as manufacturers, traders, logistics providers, and service providers that sell goods or services to other businesses on credit.

What is the difference between recourse and non-recourse factoring?

In recourse Factoring, the business bears the risk if the customer fails to pay the invoice. In non-recourse Factoring, the financial institution assumes the credit risk of non-payment.

How quickly can I get funds after factoring my invoice?

After invoice verification and approval, funds are usually disbursed quickly. The processing time depends on the documentation, invoice validation, and the customer's credit assessment.

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