HSBC has announced a tie up with the Indian government-owned, non-life insurer New India Assurance Company Limited.

As a result, the bank suggests that its factoring-cum-credit insurance offering provides an attractive export financing option for small- and medium-sized enterprises (SMEs) with overseas buyers that prefer open account to letters of credit (L/C) based deals.

Bank role

Until now HSBC has offered factoring services only to large corporates. The tie up means it is now able to extend this product to the SME segment.

HSBC, the factor, essentially offers its factoring services to SMEs by lending against its client's invoices. The bank also manages collections and takes protection against buyer's default or insolvency.

Benefits

According to Senior Vice-President and Head, Factoring for HSBC India, Bhriguraj Singh, the bank lends 85 per cent of the invoice value to its factoring service clients who enjoy several benefits.

"In the case of traditional working capital finance, the loan is based on the previous year's performance. It does not take into account demand seasonality. Factoring is flexible and permits clients to modify their funding requirements. It does not require any collateral security," he told local media.

Professional service

"In the case of SMEs it is normally the CEO or the marketing executive who follows up the collections. Owing to business reasons, they may not be able to realise the money on the due date. But a professional intermediary, a factor, is more effective," he argues.

The bank suggests that with overseas buyers favouring open account instead of L/C-based transactions, factoring helps sellers to unlock value fast.

The new service is currently available in Mumbai, New Delhi, Kolkata, Pune, Bangalore and Chennai.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.