Factoring Agreement

Factoring is a type of contract whereby unpaid receivables, based on invoices or documents accepted in lieu of invoices, arising from the sale of goods or services domestically or internationally, are assigned to a factoring company in exchange for financing and collection services used to convert these receivables into cash quickly.

Scope of factoring agreement

Article 38 of Law No. 6361 defines a factoring agreement as a contract in which a factoring company acquires receivables documented by invoices arising from the sale of goods or services, as well as receivables that may arise from the sale of goods or services that can be documented within the framework of the procedures and principles determined by the Board, and provides its client with collection, debtor and customer account management, as well as financing or factoring guarantee functions, one or all of which may be applied.

Factoring agreement is the subject of the lawsuit

Legal disputes arising from factoring agreements typically manifest as claims for receivables, annulment of objections, negative declaratory judgments, and restitution. In these cases, the creditor providing the factoring service is obligated to prove their claim. Factoring companies cannot assign receivables that are not based on a genuine factoring transaction. Factoring companies cannot assign negotiable instruments.

Factoring agreement validity and termination conditions

• If a factoring agreement is made for a specific period and, at the end of that period, neither party gives notice of termination, and the agreement does not contain a provision for extending the term, the contract automatically terminates without the need for any further legal action.
• Law No. 6361 , factoring agreements must be in writing; otherwise, transactions that do not meet the written requirement are considered invalid.
• Agreement between the parties, the death of one of the parties or the dissolution of the legal entity, loss of capacity, and bankruptcy are also grounds for terminating a factoring agreement.

Factoring agreements are subject to jurisdiction by the competent court

The competent court to hear legal disputes related to factoring agreements is the commercial court. In cases where there is no commercial court, the competent court is the civil court of first instance.

You can consult with Attorney Ferhat Kule to get answers to all the details and questions you may have