Why NBFCs Are Adding Factoring to Their Portfolio
India’s MSMEs are the backbone of the economy, contributing significantly to employment and GDP. Yet, one persistent challenge continues to limit their growth—cash flow gaps caused by delayed receivables.
To address this structural issue, many NBFCs are increasingly adding factoring to their product portfolio, unlocking a powerful working capital solution for MSMEs while building a low-risk, scalable lending line.
What Is Factoring?
Factoring is a financing arrangement where a business sells its invoices (receivables) to an NBFC or bank at a discount and receives immediate cash, instead of waiting 30–120 days for customer payments.
The factor then manages collection from the buyer, improving liquidity for the MSME and operational efficiency for the lender.
Why Factoring Makes Strategic Sense for NBFCs
1. Strong MSME Demand
Delayed payments are a common issue across MSME sectors. Factoring directly addresses this pain point, creating consistent and growing demand.
2. Lower Credit Risk
Factoring is often based on the creditworthiness of the buyer, not just the MSME. This shifts and diversifies risk compared to traditional unsecured lending.
3. Asset-Backed & Short-Tenure Product
Invoices are short-term, self-liquidating assets, allowing NBFCs to:
- Improve asset turnover
- Reduce long-term balance sheet stress
- Maintain healthier liquidity cycles
4. Operational Efficiency
By managing receivables and collections centrally, NBFCs help MSMEs reduce administrative costs while building sticky client relationships.
5. Portfolio Diversification
Factoring adds a working capital-focused product to the NBFC portfolio, reducing overdependence on term loans or unsecured credit.
Market Opportunity: Why Timing Matters
India’s factoring market is projected to grow from $5.7 billion in 2019 to $49 billion by 2032, driven largely by MSMEs.
The segment is expected to grow at a 13.9% CAGR, supported by:
- Formalization of MSMEs
- Digital invoicing and data availability
- Government and RBI reforms
- Growing acceptance of receivable-based financing
Despite this potential, factoring remains significantly underutilized, making it a high-growth opportunity for forward-looking NBFCs.
Factoring’s Role in MSME Growth
For MSMEs, factoring delivers:
- Immediate liquidity for operations and expansion
- Reduced dependency on collateral-based loans
- Improved cash flow predictability
- Faster business cycles and healthier balance sheets
For NBFCs, it enables scalable growth with controlled risk.
RBI Framework & Compliance Considerations
Factoring in India is regulated under the Factoring Regulation Act and RBI guidelines. NBFCs offering factoring must ensure:
- Proper registration and reporting
- Compliance with assignment and disclosure norms
- Robust KYC, AML, and buyer risk assessment
- Technology integration for invoice tracking and collections
Regulatory clarity has significantly improved, making factoring a viable and compliant lending vertical.
Why NBFCs Should Act Now
With MSME credit demand rising and digital adoption accelerating, factoring is positioned to become a core working capital product by 2032.
NBFCs that adopt early can:
- Capture market share
- Build long-term MSME relationships
- Strengthen portfolio resilience
- Align with India’s evolving credit ecosystem
Need Clarity on Factoring Compliance and RBI Norms?
At NBFC Advisor, we help NBFCs:
- Structure factoring products
- Understand RBI regulations
- Set up compliant operational frameworks
- Scale MSME-focused lending portfolios
📞 Contact Us for a Free Consultation
+91 93113 47006
Build smarter working capital solutions—with compliance and confidence.
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