Factority
One of the key constraints impacting the Small and Medium Enterprises (SMEs) is inadequate finance, particularly working capital. In the case of SMEs, the need for quick conversion of trade receivables, an important component of current assets of business entities, into cash assumes great importance since the lack of opportunities affects their liquidity and thereby their business, quite significantly. SMEs, despite their important role in contributing to the economy, continue to face constraints in obtaining adequate finance. One big factor which affects the ability of SMEs to convert trade receivables into liquid funds are slow paying invoices
Factority is an online institutional mechanism set up in order to facilitate the trade receivable financing of SMEs from corporate buyers through multiple financiers. Factoring & Reverse Factoring are two methods of bill discounting on Factority platform. Both methods are designed to speed up the vendor payment process without disturbing the balance sheet of any stakeholder. In Factoring, the Supplier will raise the invoice and the Buyer will verify the same. This enables the financiers which are also the invoice factoring company to bid against the verified and approved invoice. Once the supplier accepts the bid, the payment will be processed in T+2 days
Benefits for Suppliers
- Factority platform will simplify business for suppliers by a substantial margin. SMEs will operate without facing any irregular flow of their operational funds. Factority will be an easy and quick means to finance receivables at convenient rates for vendors/suppliers. It will ensure faster realization of the financing needs of the Small and Medium Enterprises segment.
- One major issue which Factority will tackle for business owners is that it will enhance liquidity. Meaning, the amount in receivables will be converted to currency sooner which otherwise would have been absorbed for a longer period in the debtor's (buyer) account book. The buyer benefits by earning a cash discount from the vendors as they get substantial savings in interest cost basis buyer's credit rating. Continual application of this process leads to a better receivables cycle too which results in better relationship building between buyers and suppliers.
- The other benefits include without-recourse financing and hassle free and paper less documentation. Suppliers enjoy better working capital management all the while increasing the options of expanding the business faster.
Benefits for Buyers
- Interest cost is a major component in the cost of goods and services provided by the vendor. The bidding model and other efficient practices on Factority will bring down the interest cost for the vendors significantly. This in turn will lower the cost of goods and services purchased by the Buyer.
- If the buyer has a payment term of 30 days with a SME then, on the 30th day, the buyer has the option of opting for Reverse factoring his Invoices via Factority, by doing this, the buyer gets an extended credit period to make the payment and the Suppliers gets payment on time.
- By reverse factoring the buyer will enable early payment to the vendor without taking any borrowing limits on his books. Here the buyer will only need to provide a confirmation of the trade transaction uploaded by the vendor on the portal. This way the vendor will get funding from the financial institution. The transaction is that of a purchase and sale of receivables between the financial institution and the vendor.
Benefits for Financiers
- Since Factority is a centralized system that will invite an improved client base, banks as well as NBFIs it will benefit them immensely in the form of cost reduction. Platform is an online exchange service for receivables, this will ensure less paperwork and hence a faster rate of completing necessary official processes. On top of that financiers also get access to a readymade client base to connect with more bankable leads.
- Factority will provide financiers with a facility to make better decision making through key information availability. The three key participants - Suppliers, Buyers and Financiers in the Factority process ensure effective data collection and analysis which make it possible for each player - including financiers to take decisions on key business aspects in a more productive manner.