What is a factoring agreement? Contents of factoring contract in Vietnam

Regarding this issue, LawNet would like to answer as follows:

1. What is a factoring agreement?

According to Clause 4, Article 3 of Vietnam's Circular 02/2017/TT-NHNN, a factoring agreement means an agreement entered into by a factor and a client on establishment, change or termination of rights and obligations of parties in factoring.

Specifically, according to Clause 17, Article 4 of the Law on Credit Institutions 2010 (amended in 2017), factoring means a form of extension of credit to a goods seller or buyer through redeeming receivable or payable amounts arising from the purchase or sale of goods or provision of services under a contract on goods purchase or sale or service provision while reserving the right to claim such amounts.

2. Contents of factoring contract in Vietnam

Specifically, in Clause 1, Article 14 of Vietnam's Circular 02/2017/TT-NHNN, a factoring agreement in Vietnam must be made in writing in accordance with Circular 02/2017/TT-NHNN and relevant provisions of law, at least containing:

- Name, address, business identification number of the factor; name, address, ID number, citizen number, or passport that remains valid or business identification number of client;

- Amount of accounts receivable or accounts payable; amount of advance; funding limit in case of factoring by funding limit; contents, time for assignment of rights and legitimate interests relating to the accounts receivable or accounts payable in conformity with the good or service contract;

- Purposes for which the advance is used;

- Factoring currency; currency to be used for debt repayment or interest payment;

- Type of factoring;

- Factoring period; period over which factoring limit is maintained;

- Factoring interest rates and calculation method of Vietnam's Circular 02/2017/TT-NHNN;

Rules and elements to be used for determining interest rate, time for determining interest rate in case of application of floating interest rate;

Interest rate converted as % per year (1 year includes 355 days) according to actual factoring debt and unpaid debt period;

Interest rate charged for overdue factoring debt; interest rate charged for late payment interest;

Relevant fees and amount thereof;

- Debt repayment, interest payment; order of recovery of debts, interests; early repayment;

- Convert factoring debt into overdue debt; form and contents of the notice of conversion to overdue debt are prescribed in Clause 2 Article 15 of Circular 02/2017/TT-NHNN;

- Recourse of debt and interest, factoring charge; contents and time for assignment of rights and interests relating to the accounts receivable or accounts payable during the course of recourse;

- Termination of factoring; collection of early repayment, conversion of factoring debt to overdue debt upon the termination of factoring; form and contents of notification of factoring termination, collection of early repayment as prescribed in Clause 1 Article 16 of Circular 02/2017/TT-NHNN.

- Deal with debts; impose penalties for violations and claim for compensation for damage;

- Responsibility for giving notice to the buyer (if any);

- Rights and obligations of parties, in which the client commits that accounts receivable or accounts payable will not be used to guarantee other debt obligations or for other credit extension purpose without consent of the factor;

- The mode to hand over the good or service contract, sale vouchers, the rights, interest and documents relating to the accounts receivable or accounts payable, which is factored;

- Dispute settlement;

- Effective term of the factoring contract.

Thanh Rin

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