PRACTICES IN PUBLIC SECTOR BANKS IN INIDIA: CHALLENGES A STUDY CLV SIVAKUMAR FAMILY SUPPORTIVE WORK VARIABLES, WORK FAMILY CONFLICT AND SATISFACTION

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2 Table of Contents Articles-HR TALENT MANAGEMENT IN GLOBAL SCENARIO FOR TWENTY-FIRST CENTURY Dr.Rajender Kumar, Suneel Kumar AN INQUIRY INTO CONFLICT MANAGEMENT STRATEGIES: STUDY OF HIGHER EDUCATION INSTITUTIONS OF KHYBER PAKHTUNKHWA, PAKISTAN Siraj ud Din HR PRACTICES IN PUBLIC SECTOR BANKS IN INIDIA: CHALLENGES A STUDY CLV SIVAKUMAR FAMILY SUPPORTIVE WORK VARIABLES, WORK FAMILY CONFLICT AND SATISFACTION Uma Bhowon, Nashad Auchoybur ORGANIZATIONAL COMMITTMENT Dr.Madhurima Ganguly, Dr Aloke Kumar SEn LEADERSHIP, POLITICS AND PARTICIPATION IN LOCAL GOVERNMENT AREAS OF GOMBE STATE, NIGERIA Charas Madu Tella KNOWLEDGE MANAGEMENT: A PLANK FOR CORPORATE EXCELLENCE PALLAVI DESHMUKH, Dr. R.K. GHAI VIOLENCE AGAINST WOMEN IN JEAN SASSON S WORKS Vijay Kumar Mehta DOES WORK -FAMILY CONFLICT CREATES STRESS AMONG WOMEN PROFESSIONALS IN CHENNAI CITY Kanagasabapathi Jawaharrani, Ranganathan Muzhumathi IMPACT OF POST-REFORMS ON CHANGING INDUSTRIAL RELATIONS ENVIRONMENT IN INDIAN INDUSTRIES A STUDY MJ Arputharaj, R Gayatri STRATEGIC HRM IN PUBLIC SECTOR: NEED OF THE HOUR Gunupudi Nirmal Dayanand Raju STUDY ON EXPLORING THE BREAKTHROUGH STRATEGY OF LEADERS IN CHANGE MANANGEMENT. Anitha Aldrin, R Gayathri Suresh Articles-Finance MICROFINANCE INSTITUTIONS: NORMS, VALUES AND RULES IN THE GROWTH OF SELF HELP GROUPS CLV SIVAKUMAR ROLE OF FACTORING IN FINANCING SMES IN INDIA Anirban Ghatak A STUDY ON INVESTOR BAHAVIOUR TOWARDS ACTIVE AND PASSIVE EQUITY MUTUAL FUNDS Suresh Naidu, Dr.B. Sudhir Articles-Marketing A STUDY OF CONSUMER BEHAVIOR APPROACH TOWARDS SHOPPING MALL ATTRACTIVENESS WITH SPECIAL REFERENCE TO THE CITY OF AHMEDABAD Sujo Thomas, Bharati Pathak RANKING ANALYSIS OVER THE FACTORIAL DESIGNS OF CRM (A STUDY WITH SPECIAL REFERENCE TO PUBLIC SECTOR, PRIVATE SECTOR AND FOREIGN BANKS) Gayathry S HEALTH INSURANCE MARKETING: PROBLEMS AND PROSPECTS Thomas Varghese, Dr. Molly P. Koshy

3 Articles-Others ANELLING EFFECT ON THE LOWER MELTING POINT TERNARY SOLDER ALLOY Sn-Bi-Zn Dunia Kamil Mahdi, Tarik Talib Issa DETERMINANTS OF CONSUMPTION OF FOOD AWAY FROM HOME IN LAGOS METROPOLIS, NIGERIA Olasunkanmi Moses Bamiro AN EXPLORATORY ANALYSIS OF INTERNATIONALIZING SMES OF IN A DEVELOPING ECONOMY : A PLS PATH MODELING APPROACH Rafi Javed Qureshi ROAD MAP OF PROFESSIONAL EDUCATION: A CASE OF MANAGEMENT EDUCATION Madhuri Hebbalkar SIGNIFICANT ROLE PLAYED BY MATHEMATICS FOR EFFECTIVE TEACHING IN MANAGEMENT SCIENCE Madhuri Hebbalkar MSME SECTOR AND ITS CONTRIBUTION TO EMPLOYMENT, PRODUCTION AND GDP Dr Namita Rajput, Mr Ajay Rajput, Geetanjali Batra TREATMENT OF US PRINT MEDIA OPINION PAGES GIVEN TO EGYPT Mirza Jan, M. Riaz Raza, Dr. Khalid Sultan BUSINESS CONTINUITY MANAGEMENT: RESILIENT STEP FOR ORGANISATIONS- A REVIEW Vivek Y Gujar CONJUGAL LIFE FAILURE IN MAURITIUS Rajen Suntoo

4 Role of Factoring In Financing SMEs in India Dr. Anirban Ghatak, Asst. Professor, Christ University Institute of Management, Bangalore ABSTRACT Factoring is one of the upcoming sources of finance for SMEs in India. It is particularly, relevant if a company is growing on a daily basis and when new customers are added regularly there are chances of ending up with huge invoices. The notion that SMEs experience disadvantage in relationship with the capital market i.e. the existence of credit rationing and also finance gaps in their relationship with banking institutions have been popular for decades. This problem often directs many businesses to look for alternative source of finance like factoring. The study shows that the demand for factoring services will tend to reflect the impact of acute cash shortage due to delayed payment by debtors causing liquidity problems. From the research it is also evident that SMEs use these services during their start-up and growth stage, since this is the stage were organisations find it difficult to raise finance due to lack of financial data about its performance history. Even though the service providers of factoring charge 10%-15% of the receivables as their commission still there are organisations that prefer factoring services. Key Words: Factoring, SMEs, Introduction: Growth of the corporate sector is important in the process of economic development. The issue of finance has been identified as an immediate reason why business in developing countries fails to start or to progress. It is imperative for firms in developing countries to be able to finance their activities and grow over time if they are to play an increasing and predominant role in providing employment as well as income in terms of profits, dividends and wages to households. Financing of SME in the country is largely seen as a part of the regulated lending through a network of state-created institutions. While it is an achievement on the part of the banking sector and shows the credit absorption capacity, there is a definite and visible gap in its support to the sector. This problem often directs many businesses to look for alternative source of finance. Factoring could be helpful when a company holds a lot of capital in unpaid invoices, and wish to sell those receivables, mostly at a discount to the face value of receivables. It would be financially more secure as all the risk of default is taken by the factoring company. Factoring provides the company with a professional credit management service that will allow you, more time to concentrate on your business. Various studies conducted in the U.S states that factoring services are used by almost 80% of the garment industry. Factoring is not yet common in the Indian industry. It acts as an effective tool to manage the working capital and also streamline the cash flows for an organisation. It is an effective tool that can be used to reduce the cash cycle which helps organisations manage the day to day activities with the cash flows rather than going for various other methods like overdraft facilities from commercial banks. Following this line of research, the aim of the study is to identify if factoring could increase the profitability and helps managing the cash flow. Specifically, this study will try to investigate whether and to what extent can factoring be used as a source of finance. To achieve this goal a panel data methodology, controlling for individual heterogeneity, will be adopted and a more complete and bigger sample, than the foregoing studies, will be chosen. > RJSSM: Volume: 02, Number: 05, September-2012 Page 165

5 Reviews of Literature: Khaled Soufani (1994), in his paper titled Factoring as a Financing Option: Evidence from the U.K cited on how use of factoring by business, varies according to difference in characteristics of the firm. Their relationship with their banks varies through the availability of credit, size and value of the collateral, total value of firms debt and also if the business is experiencing financial distress. The study found that factoring services are used by small firms more likely in manufacturing and associated industries. The demand for factoring services is evident from the financial constraints upon firms and in particular impact of delayed payment on working capital. Leora Klapper (2005) in the paper titled The Role of Factoring for Financing Small and Medium Enterprise examined how factoring helps SMEs as an innovative source of financing. Factoring is all about linking the value of the supplier s accounts receivables to the credit provided the lender. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Reverse factoring, which is a technology that can mitigate the problem of borrowers informational opacity in business environments with weak information infrastructures if only receivables from high quality buyers are factored. Florette, Gerson, and Postrick, (2008) in the paper titled Enhancing the role of factoring and leasing companies in providing working capital to SME in Namibia examined how factoring and leasing could be used in making working capital accessible to SMEs in Namibia. The study shows that factoring and leasing services seem to have lower default rates than conventional loans in all three countries. After being granted financial assistance, SMEs are not left on their own but, the lending institutions take constant follow-up action on them. Jill Malick (2009), in the paper titled Factoring can help your business with cash flow gives a view on how poor cash flow can bring a company totally down. The study shows that Factoring is the innovative source of financing that will reduce the cash crunch. Chris Miller, (2009) in his paper titled Factoring can be an option when traditional financing isn't showed that Factoring may decide a company s growth, survival or bankruptcy. The study also showed that Factoring business is growing at a stage greater than that of growth of SME businesses. Glen J Katlein (2010), in the paper titled Financing small business growth - The factoring option states that for some small business owners factoring is misused and becomes a high cost financing source that is challenging to eliminate. In some cases especially during tight bank credit environment - factoring may be used as a cost effective solution to finance working capital for growth. Objectives of the study The present study has been undertaken with the following objectives: To identify how factoring helps in effective working capital management. To identify impact on factoring if the credit availability from financial institutions declines. To analyze the capital structure that leads an organization for factoring. Variables of the study Dependent variable The dependent variable in the study is Factoring Independent variable Independent variables used in the study are Turnover, Ownership Structure, type of source of finance, bank credit, number of employee, turnover, bank credit, capital structure. > RJSSM: Volume: 02, Number: 05, September-2012 Page 166

6 Hypotheses Primary Hypothesis: Hypothesis 1: Business using factoring is relatively small when measured by turnover. Hypothesis 2: Factoring services tend to be more focused upon manufacturing. Hypothesis 3: Factoring services are used by firms which are 1-5 years old. Hypothesis 4: Factoring is availed by organisations when the availability of bank credit declines. Hypothesis 5: The higher the amount of debt, the more the business would prefer factoring. Hypothesis 6: The greater the financial difficulty the business is facing, the higher is the use of factoring. Hypothesis 7: Factoring services are more focused on limited liability companies. Sampling procedure The primary research instrument used in this study was the questionnaire. Based on the proportionate sampling method the researcher has selected 200 manufacturing SMEs from Bangalore for the current study. Data Analysis: Factoring is one of the upcoming areas in the Indian SME sector. It is one of the ways to better manage working capital requirements. The primary data was collected with a purpose of studying the objectives and to arrive at a conclusion that will determine the role of factoring in financing SME. The primary data obtained from questionnaires helped in understanding the views of the SME s towards factoring. Testing of Hypotheses: Hypothesis 1: Business using factoring are relatively small when measured by turnover. Insert Table No 1 From the above result, by taking the significance of ANOVA, the hypothesis can be proved. The acceptance rule is: If significance is less than 0.05, then reject the H 0. Here as the value is 0.468, the null hypothesis is not rejected. The beta factor of.592 depicts a positive correlation between factoring and turnover. Hypothesis 2: Factoring services tend to be more focused upon manufacturing. Insert Table No 2 value is 0.187, the null hypothesis is not rejected. The beta value being.636 states that there is a positive correlation between organisations into manufacturing and those using factoring. Hypothesis 3: Factoring services are used by firms which are 1-5 years old. Insert Table No 3 significance is 0.529, hence the null hypothesis is not rejected. The Beta factor of.505 states a positive correlation exist between age of the organisations to that of factoring. Hypothesis 4: Factoring is availed by organisations when the availability of bank credit declines. Insert Table No 4 significance is 0.016, the null hypothesis is rejected. The beta factor of.550 signifies a positive correlation which means bank credit has only a small impact on factoring. Hypothesis 5: The higher the amount of debt, the more the business would prefer factoring. Insert Table No 5 significance is 0.01, the null hypothesis is rejected. The beta factor of.546 signifies a positive correlation which means bank credit has only a small impact on factoring. > RJSSM: Volume: 02, Number: 05, September-2012 Page 167

7 Hypothesis 6: The greater the financial difficulty the business is facing, the higher is the use of factoring. Insert Table No 6 significance is 0.486, the null hypothesis is accepted. The beta factor being.504 shows a positive correlation between financial difficulty and factoring since the value is close to 0 the impact of financial difficulty on factoring is less. Hypothesis 7: Factoring services are more focused on limited liability companies. Insert Table No 7 significance is 0.365, the null hypothesis is accepted. The beta factor being.516 indicates sign of positive correlation. Findings of the Study After undertaking the study, the following findings were made about the role of factoring in financing SME. The role of factoring is to finance companies during the start-up and growth stage as their funding requirements may not be met by banks. Factoring being post shipment finance is mainly used by organisations in manufacturing sector. This is because in manufacturing there is physical delivery of products to clients and hence there is an underlying physical asset where as in service sector physical delivery of an underlying does not take place. Factoring is not used by organisations when bank credit declines or during financial difficulty. This is because a factoring company is also tends to reject an organisation on the grounds of which the bank rejected them. Ownership of an organisation does not have an impact on factoring services. The factoring service provider analyses the past financial performance and also the track record of debtors for past twelve months before offering factoring services. Factoring is not used as a tool to manage credit risk rather it is used to better manage working capital requirements. The cost incurred in availing factoring services is quite higher as the factoring companies charge a commission as high as 20% of the receivables a part of which may be released once the payment from debtors is received. On availing factoring services the entire cash flow of debtors of the company will be managed by factoring service provider and if one debtor defaults then the factoring service providers make the loss good from cash inflows from other receivables. Conclusion: The paper focuses to identify the role of factoring in financing SMEs in India. The evidence supports the hypotheses presented in terms of size, sector, age and ownership. The evidence that was collected from users of factoring services confirms that the service is availed to better manage their cash flows and improve working capital management. The demand for factoring services will tend to reflect the impact of acute cash shortage due to delayed payment by debtors causing liquidity problems. The factoring companies offer the services based on past performance of the organisation as well as the performance of debtors. From the research it is also evident that SMEs use these services during their start-up and growth stage, since this is the stage were organisations find it difficult to raise finance due to lack of financial data about its performance history. > RJSSM: Volume: 02, Number: 05, September-2012 Page 168

8 Even huge organisations are availing factoring services. This industry is in the initial stages of its growth and hence has a great growth potential. Even though the service providers of factoring charge 10%-15% of the receivables as their commission still there are organisations that prefer factoring services. To further regulate these factoring service providers an apex body is to be formulated who could regulate and lay down policies on the working of factoring service providers. As factoring service also includes export financing were in foreign receivables are also discounted by factoring companies there is huge possibility of exchange risk involved in such transactions causing loss to organisations availing factoring services. References: 1. Financing SMEs and Entrepreneurs. (2006). Policy Brief. oecd 2. Allen.N.Nerger & George.F.Udell. (2005). A More Complete Conceptual Framework for Financing of Small and Medium Enterprises. SSRN ID: Anna Lau Siew Lin. (2008, June). Securing Financial Resources for Small and Medium Contracting Firms in Malaysia. ebscohost. 4. Chris Miller. (2009). Factoring can be an option when traditional financing isn't. Hudson Valley Business Journal Business Resource Guide, Christer Bergquist &Linus Dahg. (2007). The impact of financial gap on growth and development of SME. SVCA ID: Constantinos Stephanou & Camila Rodriguez. (2008). Bank Financing to Small and Medium Enterproses in Colombia. SSRN ID: Daniel S Levine. (1998). Factoring Pay Offs. ebscohost. 8. David Dagan. (2009). Businesses explore alternative financing known as factoring. Central Penn Business Journal, David Irwin. (2006). Barriers faced by SMEs in raising finance from banks. irwingrayson id:isbe 06financeBarriers. 10. Dimitri B Papadimitriou, Ronnie J Philips & L Randall Wray. (1994). Community based factoring companies. SSRN ID: Don Sadler. (2011, June 15). Tips for dealing with slow paying customers. Costco Connection, 26(6), p Dr Stuart Fraser. (2005). Finance for Small and Medium-Sized Enterprises: Comparisons of Ethnic Minority and White Owned Businesses.BIS.GOV.UK ID: Dr. Alexander Kritikos. (2007). Financing small business in western europe - An micro level and an institutional perspective. OPUS.KOBV.DE ID:2008/ Dr. Brian Lucey. (2006). Capital Structure and the Financing of SMEs: Empirical Evidence from an Irish Survey. SSRN ID: Elise Nicole Ray. (2010). Small and medium enterprise finance in South Africa: implications for private sector-led development. DALSPACE.LIBRARY ID:10222/13151/. 16. Florette Nakusera, Gerson Kadhikwa, Postrick Mushendami. (2008). Enhancing the role of factoring and leasing companies in providing working capital to SME in Namibia. SSRN ID: Fraser. (2005). UK Survey on SME Finances. 18. Glen J Katlein. (2010). Financing small business growth - The factoring option. indiastat. 19. Grzegorz Michalski. (2008). Factoring and Firm Value. SSRN ID: Jan Bartholdy and Cesario Mateus. (2008). Financing of SME's: An asset Side Story. SSRN ID: Jill Malick. (2009). Factoring can help your business with cash flow. Inside Tucson Business, Kesseven Padachi. (2006). Trends in Working Capital Management and its Impact on Firms Performance: An Analysis of Mauritian Small Manufacturing Firms. techshristi. > RJSSM: Volume: 02, Number: 05, September-2012 Page 169

9 23. Kesseven Padachi; C. Howorth; M. S. Narasimhan & R. Durbarry. (2011.). Working Capital Structure and Financing Pattern of Mauritian SME. 24. Khaled Soufani. (1994). Factoring as a financing option: Evidence from the U.K. London: SSRN ID: Khaled Soufani. (2002, January 31). The decision to finance accounts receivables: The factoring option. Managerial and Decision Economics, p Leora F. Klapper, Virginia Sarria-Allende & Victor Sulla. (2002). Small and Medium Enterprise Financing in Eastern Europe. SSRN ID: Leora F. Klapper, Virginia Sarria-Allende, Victor Sulla. (2008). Financing of SME's : An Asset Side Story. SSRN ID: Linh GiaThai, Yun Xu. (2009). Banking market competition and SME financing in China Case study across Chinese provinces.diva-portalid:diva2: Mahesh Y Reddy. (2006). Financing of Small and Medium Enterprises in India. Cab Calling, Marcus Andersson, Petra Wahlberg and Jacob Östlund. (2006). Financing rapid organic Growth in Sweden:A study of manufacturing gazzele companies. HJ.DIVA-PORTAL ID: Marie H. R. Bakker, Leora Klapper& Gregory F. Udell,. (2004). Financing Small and Medium Enterproses with Factoring: Global Growth in Factoring-and its potential in Europe. worldbank. 32. McGee. (1999, July 2). Factoring offers companies innovative financing for accounts. Business Press, 12(10), p Mohd Amy Azhar Mohd Harif & Siti Khadijah Md. Zali. (2010). Business Financing for Small and Medium Enterprises; How to strike? ebscohost. 34. Mohd Amy Azhar Mohd Harif, Chee Hee Hoe and Siti Khadijah Md. Zali. (2011). Business Financing for Malaysian SME:What are banks detrmining factors. wbiconpro id Morten Balling, Beat Bernet and Ernest Gnan. (2009). Financing SME's in Europe. SUERF ID: Pat Wiesner. (2011). Small Company Financing. Coloradobiz, Smith and Schnucker. (1994). Organizational Structure of SME. sitesource.worldbank. 38. Thitapha Wattanapruttipaisan. (2003). The Proposal for Improved Financing of SME Development in ASEAN. Asian Development Bank, William.C.Philbrick. (1994). The Use of Factoring in International Commercial transactions and the need for legal uniformity as applied to factoring transactions between the United States and Japan. Commercial Law Journal, 30. Annexure Table No 1 (Constant) Turnover Table No 2 (Constant) Manufacturing Table No 3 > RJSSM: Volume: 02, Number: 05, September-2012 Page 170

10 (Constant) Years of operation Table No 4 (Constant) Bank Credit Table No 5 (Constant) Amount of debt Table No 6 (Constant) Financial difficulty Table No 7 1 (Constant) Ownership *** > RJSSM: Volume: 02, Number: 05, September-2012 Page 171