Circular 20/2024/TT-NHNN on factoring and other factoring-related services of credit institutions in Vietnam
Circular 20/2024/TT-NHNN on factoring and other factoring-related services of credit institutions in Vietnam
On June 28, 2024, the Governor of the State Bank of Vietnam issued Circular 20/2024/TT-NHNN, stipulating regulations on factoring and other factoring-related services of credit institutions and foreign bank branches.
The applicable subjects of Circular 20/2024/TT-NHNN are as follows:
- Commercial banks, general financial companies, factoring financial companies, and foreign bank branches.
- Organizations, individuals who are residents and non-residents related to factoring and other related services.
According to current regulations, the concept of factoring is stipulated in Clause 1, Article 4 of the Law on Credit Institutions 2024. Specifically, factoring is a form of credit provision through the purchase of receivables from the seller or advance payment on behalf of the buyer under a contract of sale of goods or provision of services between the buyer and the seller.
Circular 20/2024/TT-NHNN on factoring and other factoring-related services of credit institutions in Vietnam (Image from the Internet)
What are cases where the account receivable will not be factored?
Pursuant to Article 7 of Circular 20/2024/TT-NHNN, the factoring unit is not allowed to factor receivables in the following cases:
- Arising from contracts of sale of goods or provision of services prohibited by law.
- Arising from contracts of sale of goods or provision of services where the remaining term of the receivable is one year or more from the date of the factoring request.
- Arising from contracts of sale of goods or provision of services with agreements that do not transfer rights and obligations in the contract.
- Arising from contracts for the provision of services in finance, banking, and insurance sectors according to regulations of the Prime Minister of the Government of Vietnam on the Economic Sector Classification of Vietnam.
- Already factored or used to secure other debt obligations (except in cases where the factoring amount does not exceed the value of the receivable after subtracting the value already factored and used to secure other debt obligations).
- Overdue for payment according to the contract of sale of goods or provision of services.
- Currently in dispute regarding the execution of the contract of sale of goods or provision of services.
What are the contents of a factoring contract in Vietnam?
According to Article 16 of Circular 20/2024/TT-NHNN, the factoring contract:
Factoring Contract
- The factoring contract must be made in writing in accordance with the provisions of this Circular and other relevant laws. In cases where the contract is in the form of electronic data messages, it shall comply with the provisions of the law on electronic transactions. The contract must include at least the following contents:
a) Information about the parties involved in the factoring relationship;
b) Maximum value of receivables, maximum factoring amount, factoring limit for limit-based factoring;
c) Purpose of using the factoring amount;
d) Factoring currency, debt repayment currency, fee payment currency;
dd) Factoring method;
...
The factoring contract must be made in writing following current regulations. In cases where the contract is in the form of electronic data messages, it must comply with the provisions of the law on electronic transactions.
According to the above regulations, the factoring contract must include at least the following contents:
- Information about the parties involved in the factoring relationship
- Maximum value of receivables, maximum factoring amount, factoring limit for limit-based factoring
- Purpose of using the factoring amount
- Factoring currency, debt repayment currency, fee payment currency
- Factoring method
- Factoring period, debt repayment period, factoring limit maintenance period (for limit-based factoring method)
- Factoring interest (including interest applied for overdue factoring amounts), factoring fees
- Debt repayment of factoring, order of recovery of factoring amount, unpaid factoring interest, early debt repayment
- Transfer of overdue debt for factoring
- Debt handling
- The obligation to send a notice to the buyer or other relevant parties (if any)
- Rights and obligations of the parties, wherein the seller commits not to use the receivable to secure other debt obligations or for other credit provision purposes without the consent of the factoring unit
- Dispute resolution
- Effective date of the factoring contract
- Other contents that do not violate the law
