Factoring Agreements Under Turkish Law 6 October 2015
Factoring is, generally, the transfer of accounts receivable on all kinds of sale of goods and services basis by the business holding them—in order to obtain cash payment of the accounts before their actual due date, benefit from financing or factoring warranty —to an agency known as a factor.
A. Legal Sources
Factoring Agreement has arranged under the Financial Leasing, Factoring and Financing Companies Law No. 6361 dated 13 December 2012 (“Law No. 6361”), and defined as at Article 38 of the same, “a contract including collection which the factoring company provide to its customer, besides recording debtor or customer accounts, any of or the whole factoring or finance Warranty functions by taking over the receivables depending on goods or service sale which can be promoted within the scope of principles and procedures determined by the Board and the receivables promoted with the invoice emanated from goods or service sale.”
As well as there are many secondary regulations, it can be said that the most important ones are “Regulation on Principles and Procedures for Factoring Transactions” which regulates the principles and procedures of factoring companies’ and banks’ factoring transactions; and “Regulation on Principles for Establishment and Operations of Financial Leasing, Factoring and Financing Companies” which regulates the principles for establishment and operations of factoring companies.
B. The Form of Factoring Agreement
Law No. 6361 envisages that factoring agreements have to be landed in written form. Requirement of written form is the condition for validity.
C. The Documentated Receivables and Intelligence Research
According to the Article 4 of the Regulation on Principles and Procedures for Factoring Transactions; financing shall be provided to customer against the invoice which has been arranged by the same as to sale of goods or service, except the outlays to public enterprises.
According to the Article 8 of the same regulation; in case of any negotiable instrument or other sort of promissory note is taken by the financing entity for a receivable arising from an invoice, the customer which is the creditor of the invoice shall be the one endorsing the negotiable instrument to the financing entity.
Furthermore, it is not possible to conclude more than one agreements based on the same invoice. For this purpose, as per the Article 5 of the Regulation on Principles and Procedures for Factoring Transactions the factor shall conduct its own research including the following:
- Controlling the content of the invoice by taking the definition and form of the invoices provided by the relevant legislation into consideration,
- confirming that there is no duplicate of such invoice under the Central Invoice Recording System,
To assess the financial status and transaction history of the customer and develop procedures that would provide confirmation of the customer’s receivable with application to the debtor of the customer’s invoice or issuer of the promissory note which the customer is the beneficiary of.
D. Functions of Factoring
Functions of factoring are, generally, collection or service function, financing function and warranty function.
a. Collection or Service Function
As a consequence of the transfer of receivables to the factoring company, all of the tracking transactions regarding the receivables pass to the Factor. Hence, the collection function of the factoring can be defined as the collection of the receivables which have become due directly by the factor, and the application of any legal action aimed for the collection of the receivables when required. The management of accounting records regarding the debts, issue of a protest letter to the obligor, the legal actions taken for the collection of the debt are examples for the services performed by the factor in accordance to the collection function. In addition, for the client who transfers the receivables, the factoring company manages the accounting records of the obligor, and informs the client regarding the transaction details of the obligor, during the period between the date the invoice is issued, and the date the debt is collected.
b. Financing Function
The financing function of the factoring is the providing of financing options to the client on cases where the client has liquidity problems or where the liquidation of receivables of the client are difficult to collect. In practical terms, the factor can also provide financing to the seller for his receivables with an advance payment.
c. Warranty Function
When a warranty service is provided with the factoring agreement, in the case when the buyer or the obligor is not able to make a payment on the grounds of financial difficulty, the factor can warrant the total payment of sums within the limit specified in the agreement to the seller or the client. By this way, the risk of the obligor’s default on the due date of the debt is warranted. The limits are determined in accordance to the solvency of the obligor or the buyer and the risk analysis made with this regard.
The factoring agreements can be classified as irrevocable and revocable, with respect to the warranty function. In an irrevocable factoring agreement, the risk of non-collection of receivables lies completely with the factor. Within the scope of the conditions and limits specified in the agreement, the risk for the default of debt is undertaken by the factor. With this regard, the factor is not entitled to recourse if the obligor fails to perform his obligation on any grounds. It should be pointed out that if the goods that the client sent is in breach with the contract made with the obligor, or if the buyer refuses to make payment on any justified ground based on the commercial relationship, the factor is entitled to recourse against the seller. Because of this reason, in practice, with the firms with high credibility, the warranty service is provided and irrevocable transactions are made.
If the factoring agreement is concluded as revocable, then the risk of obligor’s default on debt remains with the client. In this case, as the factor is entitled to recourse for the payments made to the client, within the limit of the amount of debt uncollected, the factor provides financing and collection service in essence.
At the present time, the factoring companies conclude factoring agreements with their clients based standardized contracts they prepare. When these standardized contracts are examined, it is seen the irrevocable and revocable warranty functions are arranged together. Especially the factoring companies may provide irrevocable warranty to the client within a certain limit, on cases where a default of the obligor or a bankruptcy of the same is present.
E. The Applicable Law and the Court of Competent Jurisdiction
Neither in the Law No. 6361 nor in the secondary legal texts exist a provision regarding the applicable law to the factoring agreements, and the court of competent jurisdiction for the disputes arising from these agreements. With this respect, in general, the factor and the client may specify the applicable law and the court of competent jurisdiction within freedom of contract.
Türkçe Versiyonu İçin
