The Factoring Regulation Act, 2011

What it does

Factoring is the business of taking an assignment of a seller's receivables, which are the amounts customers owe the seller for goods or services, and either collecting them or financing the seller against them. The Act gives that business a statutory footing. It defines the terms (receivable, assignment, factor, factoring business), it says who may carry on the business, and it requires the assignment to be registered so that a later claimant can find it.

The Reserve Bank of India is the regulator. A person who wants to carry on the business of factoring must register with the Reserve Bank, and the Bank may give directions to factors, inspect them and cancel registration. The Act also confers on the Bank the power to specify the conditions on which a factor may operate, and the Bank does so through its directions.

An assignment of receivables under the Act gives the factor rights in the debt. The registration of the assignment in the central register of security interests is how those rights are protected against others who claim the same debt.

Who it binds

Factors, which are the entities carrying on the business, and the sellers who assign receivables to them. A debtor on the receivable is affected because the assignment changes the person to whom payment is owed. A bank, a non-banking financial company and certain other entities may carry on the business, subject to the registration the Act requires.

The Act is also the source of power for part of the Reserve Bank's wider regulation of lenders. The site's note on the Reserve Bank (Digital Lending) Directions, 2025 records that those Directions are issued under, among other provisions, section 6 of this Act, so that a factor that lends through a digital platform is within the regime for that reason.

What has changed, and when

The Act was amended in 2021, which widened the class of entities that may take part in factoring. The change was meant to bring more lenders into the business of financing receivables, including through platforms that match sellers with financiers, while keeping the registration of assignments and the Reserve Bank's role. This page does not state the detail of the amendment beyond that, and the text of the Act as amended is the authority.

What turns on it in practice

For a supplier that sells on credit, the Act is a way to turn receivables into cash. For a financier, it provides a structure in which the right to receive payment is recognised and registered, and the registration is what gives priority. A financier that takes an assignment and does not register it is at risk against a rival claimant who does.

The second point is the position of the debtor. A buyer who receives notice of an assignment has to pay the assignee, and a buyer who pays the original seller after notice is exposed. Contracts between buyers and sellers sometimes contain a clause that prohibits assignment, and whether such a clause defeats the factor's rights is a question to be answered on the contract and the Act together.

The third is the link to digital lending. A lender that offers a receivables product through a platform needs to know which of the Reserve Bank's instruments governs it, and the Factoring Regulation Act is one of the sources of those instruments. The site's note on digital lending and the default loss guarantee names the Act for that reason.