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August 2015

A. P. (DIR Series) Circular No. 5 dated 16th July, 2015

By Gaurang Gandhi Chartered Accountant
Reading Time 1 mins
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Export factoring on non-recourse basis

This circular now permits banks to factor export receivables on a “non-recourse” basis (as against the present practice of factoring of export receivables on “with recourse” basis), subject to certain terms and conditions. The following is the gist of the terms and conditions: –

a) Banks must ensure that their client is not over financed and the invoices purchased must be genuine trade invoices.

b) Where export financing has not been done by the Export Factor, the Export Factor must pass on the net value to the financing bank/Institution after realising the export proceeds.

c) The bank that is the Export Factor, must have an arrangement with the Import Factor for credit evaluation & collection of payment.

d) Notation must be made on the invoice to the effect that the importer must make payment to the Import Factor.

e) After factoring, the Export Factor must close the export bills and report the same in the EDPMS to RBI.

f) When an Import Factor overseas is not involved, the Export Factor must obtain credit evaluation details from the correspondent bank abroad.

g) E xport Factor must conduct due diligence of the exporter.

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