How is Factoring different from a Cash Credit Limit?

Banks typically analyse their customer’s last audited financial statements to assess the Working Capital finance requirements for cash credit. This approach fails when a business is experiencing rapid growth and limits assessed on a historical basis may not be sufficient to fuel business growth. Factoring analyses the funding needs of the business based on the current and projected sales volume and is therefore more in tune with the needs of the business. Additionally, a Cash Credit facility requires you to provide collateral security that is not necessary in case of a Factoring facility. Factoring solutions offer funding upto 90% of invoice value whereas the working capital bank provides between 60 – 75% funding.

How is Factoring different from bill discounting facility?

Bill Discounting facilities also suffer from the same problems as a Cash Credit facility in that they are analysed on a historical basis. Additionally, Bill Discounting facilities are released only against Bills accepted by the Buyers, which leads to a delay in release of funds to the business. Factoring on the other hand allows you to access instant cash against Sales on delivery of goods.

What is the security needed?

Factored invoices are assigned to HSBC. However, no collateral security is required.

Does your working capital bank object for Factoring?

No. Factoring is a recognised source of business finance complementary to bank finance, as per the Reserve Bank of India. Your working capital banker would be informed of the factoring facility, you avail from us.

How will HSBC disburse the facility?

HSBC will disburse proceeds against invoices raised by you on your customers. The disbursements shall be made directly to your account with your working capital banker by way of RTGS, Cashiers order or demand draft.

What is meant by Credit Protection^# ? Are there any charges for Credit Protection^# ?

The factor would protect you against risk of insolvency of the buyer and protracted default provided there are no commercial disputes. Credit protection^# is offered selectively. Credit Protection^# requests would be considered at the sole discretion of the factor. Credit Protection^# comes at an additional cost and is charged as a percentage of the invoice value.

How will I repay the facility?

Repayment of the Factoring facility will be made from payments received from your customers. HSBC will apply the payments received from your customers to the respective invoices as notified by the customers. Regular MIS would be sent to you providing payment details against invoices and a list of outstanding invoices.

Do I require an ECGC policy against my exports to protect my company against Customer default?

Along with an export factoring facility, HSBC offers you Credit protection^# against risk of customer insolvency or default. Thus, you may decide not to take the ECGC cover.

Can I avail of credit protection^# for my domestic sales also?

Yes. Credit Protection^# for your domestic sales is also offered as an add-on service to our Domestic Factoring product. You will not be required to take a specific trade insurance policy for your domestic sales.

^#Credit Protection is offered selectively subject to applicable conditions

Factoring Solutions are available for concerns located in and around the limits of select cities where The Hongkong and Shanghai Banking Corporation Limited (HSBC), India has branches and the same is subject to change from time to time. Factoring Solutions are subject to terms and conditions and are at the sole discretion of HSBC.