Hanoi, Vietnam: Requirement for customers to in Vietnam use factoring services from July 01, 2024

Requirement for customers to in Vietnam use factoring services from July 01, 2024 (Internet image)

On June 28, 2024, the Governor of the State Bank of Vietnam issues Circular 20/2024/TT-NHNN regulating factoring and other services related to factoring provided by credit institutions and foreign bank branches.

Requirement for customers to be eligible for factoring in Vietnam from July 01, 2024

The factoring providers will review and decide to provide factoring when customers meet the following conditions:

(1) For factoring sellers:

• In cases where the seller is a resident with a repayment commitment:

  • Have full civil legal capacity and civil act capacity as prescribed by law;

  • Have a legitimate capital use purpose;

  • Have the financial capacity to repay the debt;

  • Have a feasible capital use plan;

• In cases where the seller is a resident without a repayment commitment and the buyer is a resident, the buyer must meet the conditions stated at Point a Clause 1 Article 11 of Circular 20/2024/TT-NHNN;

• In cases where the seller is a resident without a repayment commitment and the buyer is a non-resident, the buyer must meet the conditions stated at Point a Clause 1 Article 11 of Circular 20/2024/TT-NHNN and at least one of the following conditions:

  • The buyer is an enterprise established and operating overseas with capital contributed by a Vietnamese enterprise in the form of investment as stipulated at Points a, c Clause 1 Article 52 of the Investment Law 2020 or in other investment forms stipulated at Point d Clause 1 Article 52 of the Investment Law 2020;

  • Part or all of the receivable's value is guaranteed for payment by a third party who is a credit institution, foreign bank branch, foreign credit institution, or insured by a third party, or secured by the customer's and/or third-party's money at the factoring providers. In cases where the receivable is only partially secured or insured, the maximum factoring amount is the total value of the secured or insured receivable;

• In cases where the seller is a non-resident with a repayment commitment, the seller must meet the conditions stipulated at Point a Clause 1 Article 11 of Circular 20/2024/TT-NHNN and at least one of the following conditions:

  • The seller is an enterprise established and operating overseas with capital contributed by a Vietnamese enterprise in the form of investment as stipulated at Points a, c Clause 1 Article 52 of the Investment Law 2020 or in other investment forms stipulated at Point d Clause 1 Article 52 of the Investment Law 2020;

  • Meets the conditions at Sub-point (ii) Point c Clause 1 Article 11 of Circular 20/2024/TT-NHNN;

• In cases where the seller is a non-resident without a repayment commitment, the buyer, who is a resident, must meet the conditions stipulated at Point a Clause 1 Article 11 of Circular 20/2024/TT-NHNN.

(2) For factoring buyers:

• The buyer who is a resident meets the conditions stipulated at Point a Clause 1 Article 11 of Circular 20/2024/TT-NHNN;

• The buyer who is a non-resident meets the conditions at Point c Clause 1 Article 11 of Circular 20/2024/TT-NHNN.

(Article 11 of Circular 20/2024/TT-NHNN)

07 cases not eligible for factoring in Vietnam as of July 01, 2024

The factoring providers is not allowed to provide factoring for receivables in the following cases:

• Arising from buying and selling contracts, providing services prohibited by law.

• Arising from buying and selling contracts, providing services with a remaining term of the receivable of 01 year or more from the date of receipt of the factoring request.

• Arising from buying and selling contracts, providing services with an agreement that the rights and obligations in the contract cannot be transferred.

• Arising from providing services in the financial, banking, and insurance sectors according to the regulations of the Prime Minister on the Economic Sector Classification System of Vietnam.

• Already factored or used to secure other debt obligations (except where the factoring amount does not exceed the value of the receivable after deducting the portion already factored and used to secure other debt obligations).

• Already overdue for payment according to the buying and selling contract, providing services.

• Currently disputed in the execution of the buying and selling contract, providing services.

(Article 7 of Circular 20/2024/TT-NHNN)

More details can be found in Circular 20/2024/TT-NHNN which takes effect in Vietnam from July 01, 2024.

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE