Official Circular 20/2024/TT-NHNN on Factoring and Other Services Related to Factoring of Credit Institutions
Official Issuance of Circular 20 by the State Bank on Factoring and Related Services of Credit Institutions?
On June 28, 2024, the Governor of the State Bank of Vietnam issued Circular 20/2024/TT-NHNN, stipulating regulations on factoring and other related services of credit institutions and foreign bank branches.
The subjects of application of Circular 20/2024/TT-NHNN are as follows:
- Commercial banks, general financial companies, factoring financial companies, and foreign bank branches.
- Organizations and individuals who are residents and non-residents related to factoring and other related services.
According to current regulations, the concept of factoring is defined in Clause 1, Article 4 of the Law on Credit Institutions 2024. Specifically, factoring is a form of credit extension by purchasing receivables from the seller or advancing payment on behalf of the buyer under a purchase and sale contract of goods or service provision between the buyer and the seller.
Circular 20/2024/TT-NHNN takes effect from July 1, 2024.
Official issuance of Circular 20/2024/TT-NHNN on factoring and related services of credit institutions? (Image from the Internet)
Which Cases Are Not Eligible for Factoring?
According to Article 7 of Circular 20/2024/TT-NHNN, the factoring unit must not factor receivables in the following cases:
- Arising from purchase and sale contracts of goods or service provisions prohibited by law.
- Arising from purchase and sale contracts of goods or service provisions with a remaining receivable period of 01 year or more from the date of receiving the factoring request.
- Arising from purchase and sale contracts of goods or service provisions that include agreements prohibiting the transfer of rights and obligations in the contract.
- Arising from the provision of services in the fields of finance, banking, and insurance according to the regulations of the Prime Minister of the Government of Vietnam on the Vietnamese Economic Sectors System.
- Already factored or used to secure other debt obligations (except for cases where the factoring amount does not exceed the value of the receivables after deducting the portion that has been factored and used to secure other debt obligations).
- Past due for payment under the purchase and sale contracts of goods or service provisions.
- Currently involved in disputes over the execution of purchase and sale contracts of goods or service provisions.
What Are the Minimum Contents of a Factoring Contract?
According to Article 16 of Circular 20/2024/TT-NHNN, a factoring contract must include:
Factoring Contract
- The factoring contract must be made in writing following the provisions of this Circular and other relevant legal regulations. For contracts in the form of electronic data messages, they must comply with the laws on electronic transactions. The contract must include, at a minimum, the following contents:
a) Information about the parties involved in the factoring relationship;
b) The maximum value of receivables, the maximum factoring amount, and the factoring limit for factoring under the limit;
c) The purpose of using the factoring amount;
d) Factoring currency, debt repayment currency for factoring, and fees;
e) Method of factoring;
The factoring contract must be made in writing in compliance with current regulations. For contracts made in the form of electronic data messages, they must follow the laws on electronic transactions.
According to the above regulations, a factoring contract must include, at minimum, the following contents:
- Information about the parties involved in the factoring relationship
- The maximum value of receivables, the maximum factoring amount, and the factoring limit for factoring under the limit
- The purpose of using the factoring amount
- Factoring currency, debt repayment currency for factoring, and fees
- Method of factoring
- Factoring term, debt repayment term for factoring, the term for maintaining the factoring limit (for factoring under the limit method)
- Factoring interest (including interest rates applicable to overdue factoring amounts) and factoring fees
- Debt repayment for factoring, the order of recovering unfunded factoring amounts, unfunded factoring interest, and early factoring repayments
- Overdue debt conversion for factoring
- Debt handling
- Obligation to send notifications to the buyer or other related parties with obligations (if any)
- Rights and obligations of the parties, including the seller's commitment not to use receivables to secure other debt obligations or for other credit extension purposes without the factoring unit's consent
- Dispute resolution
- Effectiveness of the factoring contract
- Other contents not contrary to legal regulations
