Explained: How push for factoring could benefit the MSME sector

On July 26, the Lok Sabha passed the Factoring Regu­lation (Amendment) Bill, the main focus of which is to widen the scope of the factoring business in the country. Factoring is a form of the age-old bill discounting business for micro small and medium enterprises (MSMEs). Here’s what the move means.

What is factoring?

In simple terms, factoring is acquiring bills receivables from MSMEs and releasing money, or giving short-term loans, against these bills to the MSMEs. The MSMEs provide goods and services to corporate firms and the government, but the payment is not immediately made. Instead, the MSMEs raise bills, or