Parliament passes Factoring Regulation Amendment Bill- All you need to know!

The Factoring Regulation (Amendment) Bill, 2021 seeks to amend the Factoring Regulation Act, 2011 to widen the scope of factors that can engage in factoring business, where an entity acquires receivables of another entity for an amount.

Created On: Jul 30, 2021 11:16 ISTModified On: Jul 30, 2021 11:17 IST

Parliament passed the Factoring Regulation (Amendment) Bill, 2021 with the Rajya Sabha passing it on July 29, 2021. The Lok Sabha had passed the bill on July 26, 2021 without discussion amid protests from the opposition.

The Factoring Regulation (Amendment) Bill, 2021 seeks to amend the Factoring Regulation Act, 2011 to widen the scope of factors that can engage in factoring business, where an entity acquires receivables of another entity for an amount.

Union Finance Minister Nirmala Sitharaman said that the bill's provisions will benefit the Micro, Small and Medium Enterprises of the country. She noted that the MSMEs are facing difficulty due to delay in receivables and the bill will ensure healthier cash flow and smoother working capital cycle.

Factoring Regulation (Amendment) Bill, 2021: Key Highlights 

•The Factoring Regulation (Amendment) Bill was first introduced in the Lok Sabha on September 14, 2020. The bill was then sent to Standing Committee on Finance on September 25. The committee's report was tabled in the Lok Sabha on February 3, 2021.

•Finance Minister Nirmala Sitharaman noted that the original Factoring Regulation Act, 2011 was implemented to address problems related to delay in payment and liquidity faced by all enterprises, including micro, small and medium enterprises, the problems still persist. 

•She informed that the Factoring Regulation (Amendment) Bill, 2021, after including recommendations of the UK Sinha Committee, proposed to implement long-term measures for economic and financial sustainability of the sector.

•The Finance Minister stated that the government has accepted some of the recommendations of the Standing Committee and accordingly, one amendment will be made to the Bill.

•The bill was passed in the lower house without proper discussion due to disruptions in the house amid opposition protests.

Following are some of the proposals of the bill: 

(i) The Factoring Regulation (Amendment) Bill, 2021 seeks to amend the definitions of "receivables", "assignment", and "factoring business" to bring them at par with international definitions. It also seeks to insert a 

(ii) It also seeks to insert in section 2 for "Trade Receivables Discounting System".

(iii) The bill also seeks to amend section 3 of the Act to widen the scope of entities who can engage in the factoring business by allowing other non-banking finance companies also to undertake factoring business.

(iv)The bill also seeks to amend sub-section (1) of section 19 of the Act to reduce registration time of invoice and charge upon it, to avoid dual financing.

(v) The amendment bill also seeks to insert a new sub-section (1A.) in section 19 to allow the concerned Trade Receivables Discounting System to register charge on behalf of entities using the platform with the Central Registry.

(vi) The bill also seeks to insert a new section 31A to empower the Reserve Bank of India to make regulations related to factoring business.

What is Factoring business?

A factoring business is a business where the entity/ factor acquires receivables of another entity known as assignor for an amount. A factor can be a bank or a registered non-banking financial company or any company that is registered under the Companies Act.

What is Receivables?

The receivables is the amount that is owed to the assignors by the customers, also known as debtors, for the use of any facility,  goods or services.

 

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