DIGITAL FINANCIAL SYSTEM

FACTORING CONTRACT

Module 3 2022

Oficina de Educación

Virtual USTA

DIGITAL FINANCIAL SYSTEM

Module 3 FACTORING CONTRACT

Author

HERNANDO URIBE VARGAS 2022

Oficina de Educación

Virtual USTA

SANTO TOMAS UNIVERSITY DIRECTORS fr. José Gabriel Mesa Angulo, O.P. Rector General fr. Eduardo González Gil, O.P. Vicerrector Académico General fr. Wilson Fernando Mendoza Rivera, O.P. Vicerrector Administrativo y Financiero General fr. Luis Antonio Alfonso Vargas, O.P. Decano de la división de ciencias jurídicas y políticas Alejandro Gómez Jaramillo Decano de la Facultad de Derecho DISCIPLINARY AUTHOR Ciencias Jurídicas y Políticas Facultad de Derecho Especialización en defensa de los derechos humanos DIGITAL FINANCIAL SYSTEM Module 3 - FACTORING CONTRACT Author - HERNANDO URIBE VARGAS ADVICE AND PRODUCTION Mg. Carlos Eduardo Álvarez Martínez Coordinador Oficina de Educación Virtual Mg. Wilson Arley Sánchez Pinzón Asesor tecnopedagógico, corrector de estilo y diseñador instruccional Prof. Diego Fernando Jaramillo Herrera Diseñador gráfico

Oficina de Educación Virtual Universidad Santo Tomás Sede Principal - Bogotá

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DIGITAL CHANNELS OF MODERN BANKING AND NEW REGULATIONS

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Content Module 3 Problematización - Situación de aprendizaje - Contexto

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Preguntas orientadoras

3

Introducción – Presentación

4

Legal nature of factoring

6

Characteristics and types of factoring

7

For the residence of the parties

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For transfer of risk

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For the financing

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Due to the knowledge of the factoring by the debtor

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Factoring in comparative law

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Spain

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Argentina

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Chili

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USA

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Peru

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Mexico

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Colombia

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Elements of the factoring contract

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Parties of factoring contract

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The customer or factored

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The factoring company or factor

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Parts of the contract according to different authors

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Rights and obligations of the parties

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Factor Obligation’s

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factored Obligation’s

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Factoring Contract Objective

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The term in the factoring contract

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Termination of the factoring contract

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Factoring outlook

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The factoring contract as a credit assignment contract

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The factoring contract as a contract for the provision of

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management services

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The factoring contract as a guarantee, or based on guarantee

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Bibliography / Webography

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Problematization Learning situation - Context The law principle of “autonomy of the will” that inspired private law legislation in the 19th century as a reflection of the dominant individualism, yielded to the new economic, social and political circumstances, by virtue of which state interventionism made its way to the benefit of the general interests. Currently, the State, for reasons of public interest and social utility, as the director of the economy, deploys its regulatory activity in the contractual field. Its intervention in private activities replaced the absolute contractual autonomy in the private sector, under the doctrine called "directed contracts", in which the will of individuals is restricted by general interest and public order. In general, banking law contains important restrictions on banking activities. Some of those activities imply prior authorization by the State, such as function authorizations for individuals to provide banking services. Others imply a permanent intervention, as for example the verification of the law requirements for being an administrator and the obligation of take office before a State body, the duty to provide periodic and detailed reports, the state possibility of make official visits to banks and the regulation of the monetary system. Banking law also regulates the imposition of sanctions on entities that provide financial and banking services. In this scenario, factoring contracts are agreement by means of which a company (bank or financial institution) commits to collect credits from a businessman client’s, with or without advance payment. Depending on the agreement, bank can or cannot assume the insolvency debtors’ risk. Also the entrepreneur assigns, or undertakes to assign, all the credits affected by the contract to the factoring entity. The credit amount Advance is not necessarily an obligation that the factoring entity must assume, but it is generally a service required by its clients, who find in it a great attraction. The obligation guarantee assigned credits is what provides the factoring contract with its financial function.

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Guiding questions What are atypical contracts? What is the factoring contract? Adhesion contracts and abusive clauses. How does State guarantee the rights of people who use financial services? which are the technological and contractual changes in relation to factoring? How understand factoring value chain elements under digital systems? Which is the state regulation of factoring?

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Introduction – Presentation Factoring has its beginnings in Anglo-Saxon countries, where the figure of the commission agent was used as a form of commerce in which a merchant bought and sold merchandise in his own name but on behalf of another, achieving significant merchandise interchange among the English colonies. These agents distributed, sold, and collected merchandise prices. They used to pay merchandise value in advance to their clients and finance this type of operations with loans. Subsequently, the figure became professionalized, that is, the agents were grouped into companies and offered this type of services in a more organized and efficient manner. Other authors indicate that the origin of factoring goes back to the time of the colonization of North America by the United Kingdom. Factors were commercial agents from the transoceanic textile companies, who acted as commission agents. Over time these agents (factors) were assuming more obligation, such as the responsibility to guarantee credits. The economic function of factoring is paramount taking into account that small companies make great efforts to finance their production and collection is very difficult, situation that affects business liquidity. Therefore, the financing system offered by this contractual figure ensures that companies in expansion process can compete fairly with large industries that have these problems already solved. By having an expert in charge of credit management for the placement of products or services, the task of the producers is facilitated, which allows them to focus on the products quality increase without having to manage the risk of credit collection and their mobilization. Factoring business has evolved an in actual times is carried out by companies belonging to the financial sector, frequently inked to a bank or an insurance company. Likewise, its previous textile specialization has been opened to other branches of commerce and industry. Factoring was strengthened in the United States, where cash management companies proliferated. The sales commission agent (Factor) began to dedicate himself to the collection of the assignor´s bills, and, over time, he also begins to pay in advance the debt, becoming a financier (El Prisma, 2013). Currently, the factor provides administrative services, such as customer research and accounting organization ease, so the factor would appear as the only client in the books of the company requesting the service. Factor also assumes the collection of

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credits and their eventual legal claim, among many other advantages. Another advantage of this type of contract is the possibility of offering a financing service, through which the factor generates advance payments to the factored company, generating greater liquidity and resources to continue executing the corporate purpose of the company, without being affected for the times for leans payments granted to its clients.

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1. Legal nature of factoring. The legal nature of factoring is similar to a credit assignment of a commercial sale, but goes beyond a simple subrogation of the credit to another party providing other services as seeing before. In addition to the above, it cannot be said that credits are assigned through the factoring contract, but rather, as an effect of the contract: The company who decides to hire the factor's services is obliged to transfer its credit, as a result Factoring contract is a translating title that generates the future obligation to assign those credits, which cannot be assigned at the time the contract is perfected. For this reason, factoring regulates the way in which future credits will be acquired by the factor, which clearly differentiates its legal nature from the direct credits assignment.

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2. Characteristics and types of factoring. Factoring can be defined as a set of services provided by some specialized professional corporations to natural or legal persons who want to entrust them the management of their credits and the management of their clientele, with the possibility of offering also short-term financing of these credits, under the modality of advance payments. The factor analyzes the product or service that the client (factored) requires, as well as the number of clients, the possibility of expanding the number of the factored clients, its level of production and its commercial sector, the accounting results and, in general, the factored financial situation to accept or decline the offer. If the factor decides to contract, he communicates the acceptance of the offer to the factored party and summons him to sign the respective contract. When the contract is signed the factored sends the sales invoices that he has to request their approval, and the factor analyzes its debtors and the solvency, with the purpose of examine the state of risk and thus determine their actions as subrogated creditor. The factoring contract must include all of the factored bills of sale. Factored is forced to assign all of its credits with third parties, to the factor. In this way, the factored is prevented from being opportunistic and assigning only those credits with insolvency risk, reserving for itself those in which this risk does not exist. (Masnatta, 1961). Factoring can have, without this being an essential element, a financing operation. So there are, in principle, two kinds of factoring: i)

Factoring with financing in which the factor pays in advance to the factored the credits that the factored assigns to the factor, and those that it will acquire even before the client pays. This operation ensures the solvency and liquidity for the factored company, which records in its accounting information those credits as if they were paid in cash, since the factor ensures the payment of these credits. Also the factored subrogated its creditor position to the factor for the collection from the clients (Garrigues, 1984).

ii)

Factoring without financing in which the primary function of the factor is to offer technical, accounting, administrative, client risk analysis and market expansion services, rather than as a financing mechanism. (Arrubla, 2004, pp. 179-205).

On the other hand, factoring is classified according to various criteria. The most relevant are:

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2.1. For the residence of the parties: A distinction can be made between national factoring: when both parties (factor and factored) are in the same country. International factoring is when the factored (exporter) and the debtor (importer) are in different countries.

2.2. By transfer of risk: Depending on whether the risk of non-payment is assumed by the factor or factored, it will be a factoring with or without recourse. In factoring with recourse, the default risk is maintained by the factored. This is a type of factoring very similar to trade discount. In non-recourse factoring, the factor assumes the risk of non-payment, so it acquires the obligation to pay the factored the amount of the assigned credits, regardless of whether or not the debtor has satisfied the debt. It is the most common type of factoring, since it offers the factored the guarantee of payment. You can also access the discount on the assigned credits, so that the conversion from feasible to available is practically immediate. (Arrubla, 2002).

2.3. For the financing: Factoring can be conventional when the amount of the debt is paid to the party at the time the contract is signed. These funds are advanced and pay by the factor as soon as the debt is assigned. It can also be factoring at maturity, when there is not a debt discount because it is basically the provision of an administrative service and, in the case of non-recourse, a credit insurance applies.

2.4. Due to the knowledge of the factoring by the debtor: According to this criterion, factoring can be with notification, that is, once the factoring contract is signed, the factored party contacts all of its clients, informing them about the factoring and authorizing them to pay their invoices directly to the factor. In this regard, each of the "factored" invoices must be included in the assigning clause as well as the right to collect in favor of the factor.(Cajastur.es, 2013).

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3. Factoring in comparative law Financial and social conditions have determined factoring and given it a characterization allowing both parties to modify the contractual terms according to their will. However, in some countries the contract is constructed based on special laws, for which some contractual formalization is presented (it is not an atypical contract anymore in those countries). It is important to highlight that the regulation of Factoring contracts in international terms, is carried out under the convention of the Unification of Private Law - UNIDROIT, in which regulations are dictated regarding preparation and contractual provisions. Following, some international examples:

3.1. Spain. Spain is part of the European Union and therefore it has to accommodate its specific economic rules to a common European framework. In Europe, factoring agreements have been taken from the same American nature, it does not vary much from how it is carried out in the United States, although the services contracted by European factors are more limited and deal only with the general contract terms regarding the assignment of credit. It is a model closer to the Colombian one. The Spanish Ministry of Economy and Finance issued Law 3 of 1994, adapted to the framework of the Second Council Directive of 1989. Unlike other countries in Europe, any regulations must follow the compliance established by the financial regulations from the Council of European Communities. The Spanish Civil Code regulates the factoring activity in articles 1529 and 1530, in which it is established that the client has to send the collection documents relating with the operation. However, in Spain the factoring contract is not regulated by positive legislation specifically, which leads to its nature as an atypical commercial contract, as indicated in the judgement dated May 10, 1997 of the Provisional Court of Castellón: "In the framework of the factoring contract, atypical, mixed and complex, with conceptual characteristics typical of the sales commission contract in its most remote origins, later evolved into a mere collection activity, there are currently three functions that, not always coincident, are usually satisfied: a) management; b) the guarantee, and c) the financing. If for the first, essential to any modality, the factoring entity is in charge of managing the collection of the credits that are transmitted to it, freeing the other party from the burden of material and human resources efforts and costs from such activity, reducing and simplifying that management. For the second factor assumes the

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risk of non-payment of the debtor without recourse or own factoring. The third, referring to financial factoring, the factor pays in advance yo the factored the credits, allowing to obtain immediate liquidity” However, the Factoring contracts has a special regime, included in the financing entities law made by the order of the Ministry of Economy dated June 19, 1979, which modifies the one done on February 14, 1978, which established: "1. First. Financing Entities, for the purposes of Royal Decree 89/1977, of March 28, those credit Entities that, taking the form of Public Limited Companies, with paid-up capital not less than the limits established in following article, and without being considered a Banking Company, Savings Bank or Credit Cooperative, have the exclusive purpose of carrying out all or some of the following activities or operations: 1st The granting of loans or financing credits to buyer or seller intended to facilitate the acquisition in installments, of non-consumable tangible assets that are regulated in Law 50/1965, of July 17, on the sale of mobile goods in installments; Decree 1193/1966, of May 12, and other regulatory provisions. 2nd The granting of loans or credits to the buyer or seller for the financing of the acquisition in installments of all kinds of goods not included in the previous section. 3rd The granting of loans or credits for the financing of any of the contracting parties in the execution of works, services and supplies. 4th The discount and negotiation of bills of commerce that cause or implement any of the commercial operations mentioned in the previous sections. 5ª The management of collection of credits in collection commission, or in its own name as assignee of such credits as well as the advance of funds on the credits of which it is the assignee, whatever the document in which it is instrumented. 6ª The provision of endorsements and guarantees that secure against third parties the fulfillment of the previous operations. 7th All services and operations directly derived from the above activities.” For the companies that carry out the activities referred to in section 5 of number 1 of this Order, activities directly derived financial activities are understood as market research, accounting and account management, commercial and statistical information and any other similar According to what was mentioned in the previous article, it can be observed that the Factoring company necessarily has to adopt the form of the Spanish public limited company, regulated by Royal Legislative Decree 1564 dated December 22, 1989, by which Corporations Law was approved. On the other hand, these companies must be constituted with capital in accordance

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with the provisions of article 1 Of the May 13, 1981 Law, and legal provision of the order of June 19, 1979, which modifies the February 14, 1978 law in its second article: "Article 2. The capital of the financing entities dedicated to the exercise of any of the operations mentioned in the previous article, may not be less than the following limits: a) National entities: One hundred million pesetas. b) Regional entities: Fifty million pesetas. c) Provincial financing entities: Fifteen million pesetas, except for the Entities whose headquarters are located in the squares of Madrid or Barcelona, which is estimated at fifty million pesetas. These capitals must be represented by nominative shares and fully paid up from the moment of the constitution of the company. The disbursement will necessarily be made in money, non-monetary contributions are not allowed.” The Factoring contract in Spain has several modalities, however, the doctrine does not handle a unified concept. One of them indicates that factoring is classified according to the following criteria: 1. For the availability of credit: a) Maturity Factoring, in which the factored only reclaimed its payment when the third party pays (collection management); It has the drawback that the client receives the amounts with a notable delay, more accentuated when it comes to extra-national collections, the same occurs with bank collections. b) Credit Cash Factoring in which the factoring company discounts the amount of the credits and manages their collection. 2. By notification to the third party: a) Notification Factoring in which the third-party debtor, through the contract with the seller or with the service company, or simply using an establish invoice, previously acknowledges the factoring and it is tacitly admited that the credit can be assigned to a third party. b) Non factoring notification, when this circumstance does not occur. In which case the notification must be made by the client (factored). It is unnecessary when it comes from bearer checks or bills of exchange with the peculiar characteristics of these securities. 3. By geographic scope: a) Domestic factoring: factoring company, customer and debtors, from the same nation. b) International factoring: (foreign, client and debtors). c) Export factoring: in which the debtor is a foreigner, even if the client is a national. In this case, and given the worldwide correspondence of factoring companies, a company whose registered headquarters coincides with the debtor residence is the one responsible for the collection.

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4. For the risk: a) Own factoring: when the factoring company guarantees the solvency of the third party debtor. b) Improper factoring: when the risk of non-payment is assumed by the client, since the assignment has been made with the formula “except good order” (typical, on the other hand, in the bank discount).”(Eduardo Chulià Vicent. Teresa Beltrán Alandete, 1999). Spain currently has a Spanish Factoring Association, founded in 1988, which seeks to promote, watch over and support all those actions that contributes to improving, fostering and cultivating the Factoring activity, prioritizing achieving its objective, namely: a) "With the management of credit collection: 1. in collection commission or 2. In his own name as assignee of such credits b) As well as an advance of funds on the credits of which it is the assignee, whatever the document in which it is instrumented. c) Market research, accounting, account management and commercial information shall be understood as activities directly derived from the main one.”(Eduardo Chulià Vicent. Teresa Beltrán Alandete, 1999).

3.2. Argentina. The factoring contract in Argentina began in 1995 through companies formed by some banks, exclusively dedicated to provide services related to this financial tool. The first company formally dedicated to factoring was Heller-Sud, created by Banco Bansud together with Heller Financial. Heller-Sud began its operations that year, generating US$140 million with a portfolio of 110 clients. The institution's strategy was to assist SMEs in the search for alternative sources of financing. In Argentina there is no specific factoring law. The factoring operation is based on the assignment of credit rights under the Civil Code regilation, that is, using analogy of legal regilations. The Financial Entities Law (21,526) allows factoring operations to be carried out by Commercial Banks (Art. 21), specially authorized Financial Companies (Art. 24, sub. d) and any other entity that the Central Bank considers to be compatible with his activities (Art. 20)(Fernando Baer, Mauro Ferraro, Maria Laura Oliveri, 2007). The current Law 21,526 of Financial Entities recognizes that commercial banks and financial companies are the only institutions authorized to: “…grant advances on credits from sales, acquire them, assume their risks, manage their collection and provide technical and administrative assistance …”(Financial Institutions Law, 1969). The explanatory statement of the law currently in force acknowledges that no substantive changes have been introduced in the factoring regulation, but only formal modifications, in order to ensure a more adjusted wording and enable the enforcement authority to fully exercise the regulatory power that has been assigned to it.

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The Commercial Companies Law (19,550) allows a legally constituted company to carry out factoring operations. In relation to the regulations referring to the instruments that can be factored, the Check Law (24,452) and the Credit Invoice Law (24,760), regulate the operation with deferred payment checks (CPD) and credit invoices (FC). Additionally, a series of statements from the Central Bank affect the operation of factoring, generating and/or changing minimum capital requirements regulations for financial companies who has shares on those companies that does factoring. Among the credit documents that Argentine legislation allows to be assigned to factors, the following stand out: common invoices, credit invoices, export invoices, invoices issued from project contracts, invoices issued from public works certificates, credit arising from an order bills, deferred payment checks, and credit card coupons(Fernando Baer, Mauro Ferraro, Maria Laura Oliveri, 2007). Currently in Argentina, there are two companies linked to banks dedicated to the factoring activity; one of them is Galicia Factoring and Leasing SA of Banco Galicia and Nación Factoring SA of Banco Nación, both members of FCI (Factors Chain International).

Chile. Factoring in Chile is a new industry compared with European countries, where factoring has been used since banking began to operate, despite, in Chile, factoring experience continues to growth. It is known that this contract arrived in Chile in 1986, being the financial company Financo the first company to offer it. Inco Factor SA was created in 1990, which today is Bandesarrollo Factoring. Since then, the factoring industry experienced high growth and in 1994 there were already several companies in Chile dedicated to this area. Chile is a country with great potential in the factoring industry, currently it ranks second in Latin America, with an annual sales volume of over US$ 20,000 million behind Brazil. Although they are the second 'power' in factoring, the penetration of this product is still very low based on the companies that are parto of the ACHEF, the main association of factoring companies in Chile. Currently, factoring operates with approximately 15,000 clients and, even all companies can use factoring, the biggest market potential are the SMEs. ACHEF Guide (Acevedo, 2004). Over the years, the idea that factoring is used only by small and medium-sized enterprises (SMEs) has been put aside. Currently, Chile has sought to provide support to micro, small, and medium-sized enterprises (MSMEs), granting a minimum of liquidity to help those companies to participate in a competitive market with stability and economic growth inside and outside the country. Initially, factoring in Chile was oriented to SMEs, constituting an additional

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financing tool, recognized, accepted and consolidated in the market. It currently has two associations whose main objective is to disseminate and promote the practice of factoring. There is an association of factoring companies not linked to banks: the National Association of Factoring Companies AG (ANFAC) established in April 2003 and the Association of Factoring Companies (ACHEF), these two associations are aimed at seeking the development of country’s economy. To this end, these associations regularly disseminate information on factoring, carry out technical studies for their associates, gives advice to operate with the best types of factoring depending on the companies, creates databases for common uses, advices about the best managing of credit risk for both associates and its clients, facilitates operations with state companies, and trained its associates in factoring issues.(Fernando Baer, Mauro Ferraro, Maria Laura Oliveri, 2007). Legally, the essence of the factoring contract had not been specifically regulated by the substantive Chilean legal system until the Law 19,983 of December 15, 2004, modified by Law 20,323 of January 2009. This laws introduced a general system for credits assignment related with invoices, that were, previously, regulated by different and un organized laws contained in the civil code and the commercial code. The 2004 and 2009 Laws seeks to reduce the uncertainty that characterized the collection of invoices and establishes a legal mechanism through which collection is exercised, along with regulations for the assignment of the credits, and introduces the obligation of acceptance of the assignment by the debtor (Carola A. Saldías Castillo, Eduardo T. Santibañez Rubilar, 2005). Financial entities hope that, for the benefit of market transparency, an information bureau will also be developed to clarify the payments information status of invoices issued. This initiative promoted for institutions like the Chilean Factoring Association (“ACHEF”). Institutions linked to banks do not see conflicts in sharing debtor status information with smaller Factoring companies, considering that this service will benefit the industry as a whole. (Carola A. Saldías Castillo, Eduardo T. Santibañez Rubilar, 2005). Chile is today the country with the greatest development of factoring in Latin America, it is the first south American country to have an invoice law with all the enforcement requirements, reaching a higher growth than that of Peru, Colombia and Argentina (Acevedo, 2004). Trade in European and Asian countries is very strong and factoring plays an important role there. In Latin America, meanwhile, its role is very insignificant, although trade between Latin American countries is very strong. For this reason, Chile should encourage this tool usage to be the basis of trade financing in the region. (Acevedo, 2004).

USA. The great movement of capital and financial development in the United States has

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generated a greater sensitivity to bankruptcy, being the main topic for financial tools. This originated the Law for the Prevention of Bankruptcy Abuse and Consumer Protection (BAPCPA), where the figure of Bankruptcy Lawyer (Bankruptcy Lawyer) uses Factoring contracts as credit option. The legal basis for factoring contracts is the art. 9 of the Uniform Commercial Code (UCC / Commercial Code), which regulates direct sales in which the title is transferred to the Factor. The UCC, contrary to the Colombian Commercial Code, deals with all formal situations of the factoring contract: for example, in section 9-404 (a) (1) of the UCC, mentions that the factor will be subject to all the terms of the contract between the debtor and the client of that factor (factored), so any claim for remedies arises from the contract. Another case not mentioned in Colombian regulations, that the UCC introduces is related with the portfolio’s buyer’s accountability, in which case any claim made by the debtor against the seller (factored) only will diminish the responsibility related with those specific obligations. In the United States, the factor acquires the right to collect from its client and also obtain insurance for the expected losses, that means a lower risk for the factoring service provider: this agreement is called “Recourse Factoring”. There is also the figure of the Factoring contract called Nonrecourse, which generated problems for Bankruptcy Lawyers since this type of agreement does not have a collateral to guarantee the losses, when there is bankruptcy, insolvency or inability to pay. The provisions of the US factoring agreement involve the designation of the credits covered by collateral, the risk assumed by the factor, the guarantee regarding the authenticity of the credits acquired by the company and a right to maintain a protection against any claim or return of debtor's accounts (Factoring: key issues under the UCC, 2004). The American guarantee for the factor refers mainly to the collection from the debtors and not to the debtor’s solvency, this is the reason why in factoring contracts, unlike loans, the Factor does not acquire large financial commitments "(David B. Tatge, David Flaxman, 2011). In addition, the factor will have a guarantee regarding his client the inventory and merchandise, and will have a tax benefit in which the goods those goods will not be taxed. The companies dedicated to make Factoring agreements are very attractive in any country, because, generally, companies dedicated to loans tend to have higher costs than those that factoring companies have. In the United States, bankruptcy cases of lenders are even higher than those cases that involve factoring companies. When the contracts are made, both lenders (Lenders) and Factors operate under DIP (Debtor In Possession – Debtor In Possession) regulations. The Factoring contract as assumed debt is regulated on article 364 of the Bankruptcy Code.

Peru. In Peru, the regulation about the sale of tradable invoices was established in Law

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No. 29623, which leads aims for generate financing mechanisms for suppliers of goods and services, and nullify any agreement or stipulation that prohibits the transfer of security rights. Commercial invoices must include the following (Negotiable Bill Law, 2010): a) The phrase “Negotiable Invoice”; b) the provider´s Signature and address, whose order is understood to have been issued; c) Address of the purchaser of the good or user of the service; d) Expiration date, in accordance with the provisions of article 4. In the absence of an indication of the expiration date, it is understood that it expires thirty (30) calendar days following the date of issue; e) The total or partial amount pending payment, which is the amount of the credit that the Negotiable Invoice represents; f) The date of payment of the amount indicated in literal e), which can be in total or in installments. In the latter case, the respective dates of payment of each installment must be indicated; g) The date and proof of delivery of the invoice as well as of the goods or services delivered; h) Legend “transferable copy - not valid for tax purposes”. The invoice transference occurs when it is accepted by the buyer of the right. This law also considers preventing money laundering, since it requires the purchasers of these invoices to verify their origin. The acquirer will not be responsible for the negotiable invoices acquired. It will be understood that the transfer of the Negotiable Invoice is restricted or limited when the acquirer establishes procedures or practices to do so. (Regulation of the Negotiable Invoice Law, 2011). Payments made to the acquirer must be made in his own account, in the same way as a payment order. When agreements are made with attached documentation related with the bills negotiation, qhe acceptance must being in writing.

Mexico. Factoring in Mexico was organized in 1985, within a legal framework implemented through the General Law of Auxiliary Credit Organizations and Activities. The companies that are allow to do financial leasing or factoring contracts without any government requirement are: Those corporations that, in their bylaws, expressly contemplate this instruments as the main corporate purpose, and do them constantly and professionally. They also will be consider as financial companies which may be: I. Regulated multiple purpose financial companies, or II. Non-regulated multi-purpose financial companies. (General Law of Auxiliary Credit Organizations and Activities, 1985). In factoring contracts, when the factor agrees with the supplier, the signature of the accountant will be necessary as proof of 'faith', and should include the conditions regarding interest rates, un payment conditions, the total amount of the invoice and the determination of the payment periods.

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Regarding interest’s rates in Mexico, they were legally established as follows: "I. Interest may only be capitalized when the parties have agreed to it, before or after their generation. In this case, the respective company must provide its client with a monthly account statement. The collection that contravenes the provisions of this section is inadmissible, and II.The interests will only apply to the unpaid part of the credit and its payment cannot be demanded in advance, but only for expired periods. In financial factoring operations the factor and the the multiple-purpose financial company may agree otherwise.” (General Law of Auxiliary Credit Organizations and Activities, 1985). The companies accepted to work with factoring contracts must inform their clients about the amounts of payments, the form and periods of liquidation, the value of the rate and the right to advance payments, in the event that the rate is fixed by the factor. Also Factors must inform clients of the amounts of the payments. As a common characteristic with other countries, the fundamental elements of the factoring contract are the three participants, the company or factor, the assignor and the oblige. likewise, the Mexican factoring companies are regulated by the National Banking Securities Commission, which will work together with the Ministry of Finance and the Central Bank.

Colombia. The regulation of portfolio purchasing organizations was established in the art. 11 of Law 74 of 1989, under the banking superintendence (today financial Superintendence) vigilance. The Factoring contract is an atypical contract since it is not regulated by the Commercial Code. However, under the Commercial Code principles, it should be understood as a consensual commercial subject to the principles that the same code imposes in its article 824. Despite being an atypical contract, Law 35 of 1993 established basic control over Factoring agreements. Indeed, article 11 of this law states that "From now on, the inspection, surveillance and control of portfolio purchase companies (factoring) will not be carried out by the Banking Superintendency, but will be subject to the general provisions on surveillance and control of commercial companies and the issuance and offer of securities. These companies will continue to be subject to the prohibition to receive savings from the public on a massive and habitual basis.” To avoid any illegal type of activity, any exercise of a Factoring agreement must comply with the requirements of article 103 of the Organic Statute of the Financial System. Likewise, the exercise of Factors in Colombia is regulated by Law 1231 of 2014, which states that only corporations may carry out this type of contract. Factoring contracts must be carried out under ethical standards, therefore "Companies must inform authorities of any suspicious operation of money laundering

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or criminal activity. In any case, factoring companies are obligated to comply the article 103 of the Organic Statute of the Financial System.” (Factoring Law, 2008) With the Law 1231 of 2008, "by which the invoice is unified as a security and a financing mechanism for the micro, small and medium-sized entrepreneur, and other provisions" which began to apply from the October 17, 2008, in the opinion of those who systematically analyzed this Law, the figure of factoring was always present, so this class of businessmen have obtained financing and liquidity through the negotiation of their exchange or sales invoices before the law. In other words, in a critical sense, this inclusion was not a novelty and raison d'être of this law, In this negotiation scheme, the issuer of the invoice (adherent) sells the invoice to a third party (factor) with a discount rate, that is, a percentage of discount that issuer has to assume. With Law 1231 of 2008, both natural and legal persons were allowed to “provide discount portfolio purchase services”, who must be “legally organized and registered with the corresponding Chamber of Commerce”. These factoring companies "should be subject to what is regulated by article 103 of the Organic Statute of the Financial System", in other words, those who are doing this kind of operations have the duty to implement all necessary mechanisms in order to control cash transactions, all within the framework of regulations related to the prevention of money laundering. Some of the general parameters established by this standard will be mentioned, including: • The seller or service provider issues an original and two copies of the invoice. If you want to trade the same, you will use the original. • Invoices can be sold to a financial institution or factoring company, without the need for its express acceptance, with the sole endorsement of the same. • All invoices are finalized within ten (10) calendar days following receipt of the merchandise or service and in case of silence of the payer, the person receiving the invoice is presumed empowered to accept it on behalf of the buyer. • In no case and for no reason, may the debtor refuse to pay the invoice presented by a legitimate holder thereof. However, Law 1231 of 2008 is considered an advance in the matter, business entrepreneurs deliberate it was insufficient, since include so many formal requirements that precisely are the main obstacles for the factoring contract in the country. It is the excessive requirements for the factoring contract realization plus those requirements included in the Decree 3327 of 2009, "By which Law 1231 of July 17, 2008 is partially regulated, and other provisions are issued”, makes almost impossible in practice to do this kind of agreements. Faced with the above, and in the opinion of many voices at the business level, a legislation that contributed to the positioning of the factoring figure was needed in

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Colombia, but beyond that, it was necessary to establish clear rules that allow supervision and control entities to avoid the misuse of factoring. The most recent existing decree in Colombia, is No. 2669 of December 21, 2012, through which the Ministry of Commerce, Industry and Tourism, regulated the factoring activities carried out by commercial companies, in order to reach to the factoring purpose, operation, limitations, supervision and other matters related to it and regulate the surveillance and control of factoring activities. This regulation intended to facilitate circulation of invoices and promote the growth of the factoring activity, considering factoring as important leverage mechanism for small and medium-sized companies in the country. The Decree also established that, both the assignor (factored) or the endorser, as well as the factor, may protect the risk of insolvency of the obligor, by contracting insurance. In what corresponds to factoring operations on securities whose term has expired, the parties may freely agree on the discount rate or the price that suits them. On the other hand, the Superintendence of Companies is empowered to exercise surveillance and control of Factors constituted as commercial companies whose exclusive corporate purpose is the factoring activity and those that have carried out factoring activities in the immediately preceding year, for a value equal to or greater than 30,000 current monthly minimum wages. This statement clarify which one was the competent entity to exercise control and surveillance in this type of operation. Likewise, the Superintendency of Companies will be in charge of creating a Single National Registry of Factors. For which, it is the duty of the factors constituted as commercial companies, and those which exclusive corporate purpose is the factoring activity and comply with the amount of annual factoring operations indicated in article 7 of the aforementioned decree, to send this entity the certificate of existence and legal representation. It is important to highlight that the decree contained definitions for "factoring activity", "factoring operation", "related operations", "factoring contract", "factoring with recourse", "factoring without recourse" and “Factoring brokerage activity”. Regarding judgements on factoring, the Honorable Constitutional Court in Sentence C-1021/2012, with a presentation by Judge Dr. Jorge Iván Palacio Palacio, Reference: file D-9172, November 28, 2012, declares Unenforceable the expressions “PERFORMED BY ENTITIES SUPERVISED BY THE SUPERINTENDENCY OF COMPANIES” and “supervised by the Superintendency of Companies” of article 38 of Law 1450 of 2011, “by which the National Development Plan, 2010-2014, is issued”. The Court considered that the norm "(…) favored with the exemption of the GMF tax to those factoring companies that have greater financial muscle in comparison with others with less economic capacity, when in both cases they develop the same corporate purpose – factoring operations aimed, among other things, to the strengthening of small and medium-sized companies. With this, tax neutrality is broken in order to grant an economic advantage to an specific corporation group in the

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detriment of those persons – natural or legal – who carry out the same main activity but are even in a weaker position in the market. Fiscal asymmetry, which in turn affects free competition. Concluding that as a consequence of this sentence, "all factoring operations carried out by duly registered natural or legal persons, whose main corporate purpose is this type of operation, will be exempt from the tax on financial movements -GMF-". For factoring to exist, the intervention of a supplier or client is necessary (who sells the service or product – owner, creditor who needs immediate liquidity); a financial entity (who buys the invoice from the supplier or client and makes it effective against the debtor) and a third party that could be called the debtor and who, strictly speaking, is not part of the operation (receives the service or product from the client – is responsible for of the obligation). The obligations of the parties are directly related to the economic operation that frames the factoring and the type or modality chosen according to the financial need of the company. Take into account that this operation is not only performed on invoices, but also on contracts in which future flows are involved. According to the conditions agreed upon by the parties, the contract may be for a definite or indefinite term and its termination will occur upon completion of the agreed term or when parties define other termination ways.

Elements of the factoring contract Globalization, entrepreneurship, new business, FTA, etc., are terms are linked to our daily life, even if it is not known exactly what they are about. What is certain is that they are linked to the development of business ideas that move the world. Those ideas require investment for its realization: here is one of the main obstacles that companies and entrepreneurs face when implementing business plans and their consequent search for consolidation in the market. Based on this premise and the constant growth of globalized markets, different ways of obtaining financing sources have been generated so that any business, regardless of its geographical location, reach financial support for its growth and one of these factoring. Factoring is a tool easy to execute because it is a relatively simple agreement. However, it is indispensable to know the essential elements that regulate this figure and the roles that each of the parties play in the commercialization of a security such as the invoice. Factoring is a contract that Colombian legislation already define its general regulatory elements with the Decree 2669 of 2012. Also it is pertinent to examine the different interpretations of the factoring elements as parties involved, their obligations, term and extinction than have been developed by some authors.

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Subjects involved in the factoring contract. The parties involved in the factoring contract can be classified into two. However, in the development of the economic operation there must be a third party that, although for some authors it is not considered as part of factoring, it is necessary for its operation to be configured. The foregoing is inferred from the different sources consulted that allow us to reach this conclusion. Although the authors who deal with this matter call them differently, the intervention of a supplier or client who sells the service or product could be indicated in a general way – owner, creditor who needs immediate liquidity; a financial entity that purchases the invoice from the supplier or client and makes it effective against the debtor and a third party debtor who receives the service or product from the client and is responsible for the payment (Cabanelas, 1987). In general, most authors determine the parties involved in the factoring contract to be the client or factored party and the billing company. (Bank, 1982).

The customer or factored. It is the person who celebrates with the factoring company the factoring contract with the purpose of obtaining liquidity, in addition to other services and for this purpose informs it about its clients, activities, marketing, accounting, etc.

The factoring company or factor. It is a financial company legally authorized to provide the set of services that comprise the operation of factoring.

Parts of the contract according to different authors. Lisandro Peña Nossa, in his work National and International Commercial Contracts, defends that the Buyer, the supplier and the factoring company are those who are involved in the operation. This author defines them as follows: i) the buyer: person who buys the product or service and is responsible for the obligation contained in the title object of the factoring; ii) the supplier: person who sells the product or service and who sells the portfolio titles signed by the buyer and iii) the factoring company (Bank): the entity that buys the invoices at a discount and that can grant the buyer additional term (Pena, 2012). Sergio Rodriguez, in the treaty of Bank Contracts and their Significance in Latin America, points out that there are three parties involved in the factoring contract: the adhering client, the factor or bank, and the debtors. The Adherent client: is the corporation, natural, industrial or merchant person that, due to the considerable volume of portfolio, presents to the Factor or factoring

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company, its financial statements, its sales systems, the commercial interaction with its debtors, the accessory indicatives on the sales process, percentage of overdue portfolio, doubtful collection, written off, etc. Based on this information and the contractual agreements, he obtains the fundamental service of settling in cash, all or part of his portfolio. The factor or Bank: It is the entity that, having financial resources and a technical organization that allows it to handle billing from the investigation of the economic capacity of the buyers, to its collection through the courts, offers to comply the third parties’ obligations agreed in the contract at their own risk. The debtors: they are third parties, but they play a fundamental role in the development of the contract. In the end what counts for the factor is the economic capacity of the debtors, that is, the solvency that grants that they can satisfy their obligations. Factors depart from the investigation of the economic solidity of the buyers until its collection by judicial means, offering to comply with the obligations agreed in the contract and especially the one to acquire the credits at their own risk. (Rodriguez, 2003). Colombian banking entities (AVVILLAS, 2013) consider that the parties involved in the factoring contract are called as follows: Client: is the natural or legal person with whom the Bank signs the framework contract according to the different factoring lines stipulated in said contractual instrument. Supplier: is the natural or legal person who has sold goods and delivered those goods, and/or effectively provided services, for which reason they have issued invoices, securities or other documents to a third party. Buyer: is the natural or legal person who has acquired and received goods and/or services provided by a Supplier, for which the securities has been issued. Other authors point out that two parties are involved in the factoring contract: The assignor (client) and the assignee (factor), but a third party called the debtor participates in the relationship generated by said contract. In national factoring (one of the factoring classifications) three subjects participate in domestic trade operations: Borrower, assignor or client who is the company that sells its portfolio, which originated from the sale of goods or services on credit. Typically, these companies are relatively small manufacturers that sell on a repetitive basis to a large number of industrial customers or distributors. In other words, they are the owner of the invoices. Factor: is a financial institution that buys securities. The factor generally accepts all credit risks associated with the bills it purchases. Although the factor is the primary a factoring institution, some commercial banks and trade finance companies can also be factors. The factor can offer services for exporters at a certain time, protecting their clients from bad overseas debts and providing, for example, expert advisers on foreign transactions, in short, the factor executes collection management.

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Buyer or obligor: It is the company that buys goods or services on credit and that has become a debtor of the selling company, which will receive a notification of the factoring. Therefore, the buyer will be obliged to pay the factor. (Hernandez R., 2011). As evidenced in the previous comparative description, although there are some differences of whom the parties of factoring are in conclusion authors maintain unity of criteria in the description of who must integrate this contractual form.

Rights and obligations of the parties. From the conceptual development of some authors studying this contractual figure, some essential characteristics are attributed: i) Consensual, because for its perfection the will of the parties is enough without the need for any solemnity; ii) bilateral due to the existence of reciprocal obligations by the parties involved; iii) onerous because it is of a commercial nature and implies a profit motive; iv) of successive tract because it obliges the parties to successive obligation, v) nonnegotiable, considering that the client is limited to accepting the conditions that the factor propose without the chance of modification. After knowing the parties involved in the factoring or factoring contract and based on the characteristics of this business tool, and taking into account the existence and use of various modalities thereof, the rights and obligations of the parties will be described.

Factor obligations. Although the factor, client and third parties are involved in the factoring operation, the contractual relationship called factoring only concerns the factor and its client (Arrubla, 2004). In principle, Factors has the obligation to collect the assigned credits. Therefore, the company must proceed to collect the credits that were transferred to it by its client and has the power to grant extensions for payment and to agree new conditions with third parties. Also, they have to pay the approved invoices and the obligation to finance: The factor must finance the amount of the invoices when it is so stipulated in the contract. In the same way, Factors must assume the risks of insolvency of third parties when it has been expressly agreed in the contract depending of the expected time, as well as may be in charge of studying the credit capacity of the eventual client of the factored company, in other words, carrying out a credit investigation. likewise, it is assisted by the obligation to keep accounts: The billing company usually assumes the obligation to keep the customer's sales accounting.

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Finally, the factor is obliged to inform his client about the changes and the status of the account between them through a commercial current account contract. The main obligations of the factor are the following: • Pay the price: It consists of the obligation to pay the price of the not due acquire invoices at the time they are presented, in which case an interest rate could be will be charged if agreed. The price will be decided taking into account the value of the credits and charge as a deduction. A deductible additional percentage can be paid, so that the client assumes part of the financial risk. • Assume the financial risk: The factor assumes the financial risk by renouncing of performing legal actions against its clients, which occurs when there is no room for endorsement of securities and when the endorser must respond in any case due to the solvency of the debtor. • Recover the credit within certain rules: Although it is true that as a consequence of the factoring contract the factor has the right to collect by all means the sums owed, it can be agreed that in certain cases and related with certain clients, the factor, before executing any legal action, consult with the factored, in which case they can agree to reimburse the corresponding amount, return to the invoice, and make the decision to directly advance the collection.

Factored obligations. The factored obligations may vary according to the kind of factoring that is agreed. Thus, the factoring implies to assign all the securities obligations to the factor (principle of globality), it is also obliged to request the factor's approval of all credits originating from its company's sales. The factoring contract has the effect of forcing all obligations to be transferred to the factor. To carry out the credit transfer, it is possible to use any of the legal forms established in Colombia, depending on the way in which said credit has been documented. (Bermudez Ruiz, 1972). Regarding the notification, the factored party is obliged to do the following: communicate to its clients that the factoring contract was signed (it will include the invoices). In compliance with the obligation to provide information, the factored is responsible for: • Inform the factor and send the corresponding documentation of each of the sales operations, which will allow him to verify if the operations are accordingly with the instructions.

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• Inform about their financial situation, which will allow the factor to aprove the destination of the resources obtained by the mobilization of credits. • Allow access to the accounting so that the factor can verify compliance of the globality principle. • Notify payments received from customers and assign them. • Communicate all risk related relevant information to the factor including all solvency information’s of the debtors. Likewise, it is a duty to make a payment for the services received as factor commission. The commission is determined based on a series of criteria such as sales volume, average value of the invoices, the term for payment of these, number of clients, industrial sector, etc. (the remuneration usually oscillates between 1% and 3% plus interest). Likewise, it must comply with the exclusivity obligation, consisting of the obligation not to enter into other factoring contracts with other factors. By virtue of this stipulation, the client may not transfer their credits to a different person, nor may they assign them under any title in favor of third parties. In the same sense, the factored undertakes the guarantee of the existence of the credit that is assigned. On the other hand, the factor's obligations would be as many as correspond to the number of services provided to its clientele. (Rodriguez, 2003). The main obligations in charge of factored are: • Check all the orders: The factored is obligated to submit all its orders to the factor, or to obtain lines of credit for its clients so that the invoices sent are always covered by the factor's general or specific authorization. • Sending all the invoices: it is the obligation to submit all the orders to the factor without reserving some. This prevents that the client only sends to the factor the orders that he considers to be of some risk, reserving for himself those he believes that he does not have any risk. In this way, you would avoid paying commissions or corresponding interest and would increase the overall risks for the factor. • Guarantee the existence of the credit, in the understanding that the client does not guarantee the debtor's solvency; The adherent company (factored) has the obligation to guarantee the existence of the credit that arises from having made the dispatch and obtained a receipt of satisfaction of the debtor, that is, without claim on his part. Therefore, if the delivery was made on time and if the debtor expressly agrees to that delivery, it is not difficult for the adherent company to guarantee that the credit exists. According to Lisandro Peña, the factoring must notify the debtors of the conclusion of the contract and of the main consequences that have arisen, additionally,

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specifically, it must indicate in each invoice that the corresponding credit has been transferred to the factor and, consequently, that the factor will receive the payment. This possibility does not apply to factoring without notification, when the adhering company prefers that its client does not know the existence of the factor (Pena, 2012). The obligation to remunerate the factor can be of a mixed nature, that is, a commission calculated on the volume of invoices or credits transferred in consideration for the administration, and, depending on the complexity and scope that in each case, some additional points to cover the risks derived from the portfolio´s proven behavior. Also an additional interest rate can be granted. It can be affirmed that the obligations of the parties are related with the operation of the contract. Doctrine agreed on the activities which the parties are involved in factoring and their obligations. In the same way, it is easy to find coherence between the obligations and/or duties of those who make up the contractual relationship with the essential elements of the figure under study. (Susfeld, 1968).

Object (purpose) of the factoring contract. The purpose of the factoring is clear when the economic operation that frames it, is understood. In this sense, it can be indicated that the operation begins when one party (the factor company or factoring company) is entrusted of collecting invoices, bills, receipts, promissory notes or, ultimately, the collection of due credits from another party, (the client – holder of the invoice) for the sale of a product or the provision of a service; so party outside the contract (debtor of the customer's product or service), responds to the factoring company or factoring company. After the Understanding of factoring operation, it is important to highlight, as different writers said, what is the purpose of this contract, which day by day becomes a recurring figure in the business world, especially in those companies that do not have a solid financial structure. The factoring purpose or object of this commercial operation is that a commercial company called a client contracts with a financial entity called a billing company, in order to the second to provide a set of services that mainly includes the financing of its credits with its clients assuming the risk of collection in exchange for consideration (Arrubla, 2004). General Chamber of Financial Advisors of Paris, regarding the factoring operation, literally propose: "The operation consists of a transfer of commercial credit from its holder to a factor that is in charge of operating and guaranteeing its success, even in the event of momentary or permanent insolvency of the debtor, mediating a withholding for its intervention expenses.” (Susfeld, 1968) In addition, Sergio Rodriguez, considers the Argentine definition as the most accurate to state the object or purpose of the contract: "Grant advances on credits from sales, acquire them, assume their risks, manage their collection and provide

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technical and administrative assistance” (Rodriguez, 2003). This author stands out that this figure combines credit assistance with the administration and collection of invoices resulting from sales of goods or services. He concludes that, for the merchant who uses the service, there are a set of advantages that, in addition to the financial ones, entail the possibility of delegating the administration of their portfolio and can have a strict control over the selectivity of their clientele. On the other hand, Gerardo Ravassa maintains that the factoring contract’s goal " is the acquisition of a term credit to cash out it". However, he adds that factoring has been translated into Spanish as "portfolio purchase", and in his opinion this appreciation is inaccurate since it does not include many other services involved in the factoring. (Ravassa, 2001). For Roca Gillamón, factoring supposes "a business cooperation activity whose objective is for the factor the acquisition from the producers of goods or service providers, of the credits that they hold against their clients or buyers, guaranteeing their satisfaction, in exchange for compensation, to which can be added a possibility of financing through advances with and interest rate” (Gillamon Rock, 1976). Factoring is used as a tool, both in the case that the client is dedicated to the sale of merchandise and to the provision of services whose collection is made in the short and long term. For Max Arias Schreiber, the object of the contract, “is (…) to create, regulate, modify or extinguish obligations. In this sense, he affirms that the object of the contract from the client's point of view consists of the intention of obtaining the administrative and management services that the factor can provide, in addition to the financing that the assignment of its client portfolio may entail. From the point of view of the factor, then, the object consists in the purpose of obtaining compensation for the services and the financing it provides.” (Arias & Schreiber, 1999). In Colombian legislation, under the 2669 of 2012 decree, the Factoring Operation is defined as follows: "That through which a factor acquires, for consideration, certain patrimonial rights of credit content, regardless of the title that contains them or its cause, such as and without limitation to them: sales invoices, promissory notes, bills of exchange, pledge bonds, enforceable judgments and conciliation acts, whose transfer will be made according to the nature of the rights, by endorsement, if they are securities or through assignment in other cases”. In the same way, article 2 of the aforementioned decree is defined factoring as the agreement of wills through which the factoring operations, specified in that norm, are implemented. Based on the aforementioned approaches, it can be affirmed that the objective pursued by the parties in a factoring contract is none other than to obtain benefits from this commercial. This contract implies a financial transaction in which a company pays a price to obtain immediate financing for its un paid sales or services,

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and if required, obtain a guarantee over its buyer’s insolvency.

The term in the factoring contract. The term of the contract is the period of time during which the factoring company is obliged to acquire the credits from the sales and/or provision of services of the factored client or, to receive from the client the documents that represent these credits to manage their collection. In general, the time established in factoring contracts are agreed between the parties. The duration of factoring can be held for a specific period of time or indefinitely. The usual thing in this type of contracts is that they are held for a fixed time (Pena, 2012). If there is no fixed term indicated for the contract, it will be necessary a stipulation that states a way for its finalization, agreeing a notification time for it. Given the atypicality of the contract, it is convenient to agree on the period of time with which this notice must be given unilaterally in order to terminate the contract. It is important to note that the time in the factoring contract goes hand in hand with the causes of normal or abnormal termination. (Arias & Schreiber, 1999). To better understand the settlement of the time in this type of operation, Luisa Fernanda Castro explains the factoring operation, it is important to understand that not only applies to invoices or bills but also to future cash flows. According to the author, this practice is very common among contractors who carry out work, services, and especially in infrastructure contracts. (Castro, 2013). She warns that once the factoring company has the invoices in its possession, it is in charge of collecting from the buyer when set time expires. Invoices are regularly issued with maturities of 30, 60 and 90 days, and a period of up to 180 days can be arranged with the factoring company to make the payment, but this depends on the internal policy of the financial institution that is providing this service. In the case of contracts, their times are normally agreed on a range between twelve and twenty-four months.

Termination of the factoring contract. The termination of the factoring contract, in principle, is linked to the conditions agreed upon by the parties, even a specific period of time or an indefinite time were agreed. In the first event, its termination will occur with the fulfillment of said term, when the term is indefinite, its termination will depend on the circumstances that arise and due to their occurrence authorize one of the parties to terminate the contract. Thus, among main causes of termination are the mutual agreement, the expiration of the term, the breach of one of the parties of its contractual obligations, the extinction of any of the legal entities involved in the business, their bankruptcy or insolvency situations.

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For Jaime Alberto Arrubla there are two forms of termination of the contract, namely: • Normal termination of the contract. • Abnormal termination of the contract. Regarding the first the author maintains that, in the case of factoring with a defined term, its termination depends on the set time. In this contract parties usually agreed to include a renewal or extension clauses that would automatically extend the duration of the contract unless one of the parties notify the other of its termination desire. In contracts not subject to a designated fixed term, it will be necessary, due to the atypicality of the contract, to stipulate a period of time in which notice must be given unilaterally in order to terminate the contract. Regarding the abnormal termination of the contract, it establishes that it can happen before the arrival of the period for the contract´s duration, or if there are i) abnormal circumstances that authorize one party to terminate the contract. He indicates that those abnormal termination clauses must be in the contract and normally are: ii)

The relevant breach of one of the parties of any of its contractual obligations. In this case it is necessary that the breach makes the other party reasonable believe that the other party is un able to continue attending to its obligations (Arrubla, 2004)

iii)

The bankruptcy of one of the parties. This situation puts an end to the factoring contract since the declaration of bankruptcy of the factored company, the bankruptcy or the liquidation of the billing company tend to the finalization of the corporation.

iv)

The dissolution of the company whose part of the contract: It is evident that if one of the companies is not going to continue exercising its corporate purpose, the duration contracts that they have been executing must be terminated. Without a doubt, the obligation to indemnify the damages caused to the other by the termination of the contracts would arise. Termination by mutual agreement: this cause may occur at any time during the execution of the contract, the parties may agree to terminate the contract.

Accordingly, with law 222 of 1995, the initiation of the bankruptcy process could never be agreed as a termination cause for the contract. This stipulation seeks to save the company that is admitted to the bankruncy Colombia procurement because companies’ continuity depends on the continuation of its successive tract contracts. However, in the opinion of the writer, the legislator forgot that long terms contracts can affect third parties stability as happens in public services contracts. In the judicial review No. 99 of March 2011 of Costa Rica, it is established that the termination of the factoring contract occurs by virtue of its duration, which is normally

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indefinite, or when it is at a specific time. Extensions could be established. In the first case, the notice period would be agreed for the end of the contract or unilateral withdrawal. (Hernandez R., 2011). In addition, there are finalization duties for each of the parties: Refund of the advances received by the client and returning of the not collected credits. However, in this aspect, factoring would not be very different from other adhesion contracts in force within the financial institutions, where it would be necessary to distinguish between normal termination due to compliance with the economic, commercial or financial purposes of the contract, and pathological termination.

factoring outlook It cannot be ignored that factoring in Colombian law is currently an atypical contract, despite its existence and developing throughout the 20th century. This shows that the merchants advances the legal processes according to his needs, without taking into account the written law, acting ahead of legislators. In fact, when looking for a definition of factoring, the Encyclopedia Britannica in its 1964 edition gives the following definition of the word factor: "It is a commercial organization that provides financial, credit, reserve and accounting services to manufacturers and distributors of goods". The Factoring Contract has originally been confused with the Assignment of Credits, which was perhaps the first purpose of the contract, but its evolution has been constant given it different uses. Therefore, the contract have transcended the bordering barriers of the countries, following the uses of trade, becoming a complex contract. For this reason, in order to understand the perspective of factoring in modern law, it is necessary to analyze the services that are provided from it and its uses in any field, since the factoring contract is developed in the world and the current law goes beyond just as a credit assignment contract.

The factoring contract as a credit assignment contract The assignment of future credits -which essentially takes place within factoring contracts- may have its raison d'être in credits which will arise from contracts already signed. The present investigation covers, first of all, the problem of a general and non-exclusive assignment of future credits, since in the development of various business operations there is an increase of assignments figures that, despite to work based on the assignment model, they cannot be granted the transfer effect (assignment for the purpose of collection or assignment as a guarantee). In second place, tries to clarify the uncertain panorama caused in the business world by the variety of assignments and factoring types, its wrong denominations and configuration. In third and last place, the central aspect of this relate with the problems

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of the effectiveness of the assignment of future credits against third parties, especially, against the assignor's creditors and against the latter's bankruptcy. The financing mechanism in the assignment of credits and essentially future credits, has the problem of uncertainty about its effectiveness within a legal system. However, not only Colombian but in international Law, the mere assignment is insufficient in order to make a perfect the transmission of the right, since another contract whose generate the right it is needed, call it (purchase, sale, donation, etc.). The Colombian Civil Code regulates the assignment of credits within the sale (arts. 1526 et seq. CC), in line with the most common assignment hypothesis in practice, whose sole function is to drive the credit market, which is always an onerous transfer. From this analytical focus on onerous credit assignments, it seeks to obtain immediate liquidity even it has not expired or it has not been liquidated. To obtain financing the credit is sold at a value lower than nominal, so that the assignee profits are the difference between the price paid for the assignment and the amount that would be obtained from the assigned debtor. Financing can also be obtained by a means other than the assignment. In this way, the factoring contract can manifest itself as a contract called to regulate the assignment of credits, a situation with which a large part of the doctrine in Colombia agrees, even so, assuming that the factoring contract entered to replace the assignment of credit only, is not consistent with the flexible dimension that factoring essentially has (Thorny Mantilla, 2008).

The factoring contract as a contract for the provision of management services. As noted above, factoring has a flexible dimension that calls for it to be seen beyond a simple assignment of credits, for this reason the nature of the contract adapts to the specific needs of the merchants, not sticking to a single operation type. Factoring contract seems to try to move according to the uses and needs of the trade so New style of factoring is found: factors in addition of providing the fundamental financing service, they offer a whole set of complementary services. (Hernandez Hernandez & D'alolio Jimenez, 2013). For this reason, in addition to financing services, a wide range of services are offered, including the development of representation and agency functions for the entrepreneur, finding in the legislation of some countries contracts called “Drop Shipment factoring” or “mil agent factoring” (Thorny Mantilla, 2008). This delegation of functions represents a great advantage for the businessman, since it allows him to focus on the production operations of his company.

Factoring the contract as a guarantee, or based on guarantee.

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The factoring contract also resolve the guarantee of the credits problem, since in some contracts, the factor grants the payment of all the credits to the factored party, protecting it from the possible insolvency of one of its clients. The most general agreement involves financing services, assumption of risk by the factor, unless the payment nugatory comes from deficiencies of the product or services delivered. In practice, the factor does not accept the accounts corresponding to some debtors, specifically those who have commercial disputes with clients or with other vendors. When this happens, the entity reserves the right to reassign the account to the client or only accept those accounts for which there is no problem. It is also known as pure factoring. Factoring can improve the rotation of companies’ capital, which will allow a greater volume of sales, especially when the risk of defaulting and insolvent is assumed by the factoring company, allowing customers to have greater solvency. Despite the fact that factoring can provide various services, those must be subject to the requirements of the merchant, making this contract above all a business collaboration contract, including an economic activity determined by the parties, in search of their own goals and objectives (Thorny Mantilla, 2008).

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Bibliography / Webography

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Universidad Santo Tomás

• Acevedo, G. (2004). Las Claves del Factoring. Asociación Chilena de Factoring. • Arias, & Schreiber. (1999). Contratos Modernos (Primera ed.). Lima: Gaceta Jurídica Editores. • Arrubla, J. (2002). Contratos Mercantiles. En J. Arrubla, Contratos Mercantiles: Contratos atípicos (Cuarta ed., págs. 193-195). Bogotá: Dike. • Arrubla, J. (2004). Contratos Mercantiles (Quinta ed.). Bogotá: Dike. • AVVILLAS. (Septiembre de 2013). AVVILLAS. Obtenido de https://www.avvillas.com.co/wps/portal/avvillas/banca-empresariasl/productos-se rvicios/productos-financiacion • Bancaria, A. (1982). Factoring un nuevo servicio financiero. Bogotá: Ed. Asobancaria. • Bermúdez Ruiz, E. (1972). El Factoring. Nuevas Fórmulas de Financiación. Madrid: A.P.D. • Cabañelas, G.-K. y. (1987). Contratos de Colaboración Empresarial. Buenos Aires: Heliasta. • Cajastur.es. (Septiembre de 2013). Obtenido de http://www.cajastur.es/empresas/productos/archivos/fichero300_10.pdf • Carola A. Saldías Castillo, Eduardo T. Santibañez Rubilar. (2005). Nueva Ley 19.983 impulsará Industria del Factoring . FichRating: Instituciones Financieras, 1. • Castro, L. F. (2013). Factoring: Transforme su cartera en efectivo. El Mueble y la Madera. Obtenido de www.revista-mm.com • David B. Tatge, David Flaxman. (2011). American Factoring Law. American Bankruptcy Institute • Eduardo Chulià Vicent. Teresa Beltrán Alandete. (1999). El contrato de factoring. • El Prisma. (Septiembre de 2013). Obtenido de http://www.elprisma.com/apuntes/derecho/factoring/default3.asp • Fernando Baer, Mauro Ferraro, María Laura Oliveri. (2007). Acceso a Financiamiento a través de Factoring. Centro para la Estabilidad Financiera, 17, 25.

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Universidad Santo Tomás

• Garrigues, J. (1984). Curso de Derecho Mercantil. México: Editorial Porrúa. • Hernandez Hernandez, R., & D'alolio Jimenez, C. (2013). Revista Judicial Costa Rica. Obtenido de http://sitios.poder-judicial.go.cr/escuelajudicial/archivos%20actuales/documents/r evs_juds/revista%2099/pdf/art_09.pdf • Hernandez, A. M. (2009). El Factoraje Financiero en La Actualidad. Michoacan. • Hernandez, R. (2011). Contrato de Factoring. Revista Judicial de Costa Rica. Obtenido de www.poder-judicial.go.cr • IFA, I. F. (2004). Factoring: key issues under the UCC. The commercial factor. Información Empresas. (Septiembre de 2013). Obtenido de http://www.informacion-empresas.co/Empresas_FACTORING.html • Inspección, vigilancia y control en las actividades financieras. (1993 ). Ley 35. • Ley de Entidades Financieras. (1969). Ley 18.061, Capitulo V - E. • Ley de Factoraje. (2008). Ley 1231 de 2008. • Ley de Factura negociable. (2010). Ley Nº 29623. • Ley General de Organizaciones y Actividades Auxiliares del Crédito. (1985). LGOAAC, Capitulo II. • Mantilla Espinosa, E. (2008). Los Contratos en el Derecho Privado . Bogotá: Legis. • Masnatta, H. (1961). El Factor de Comercio. Buenos Aires: Bibliográfica Omeba. • Peña, L. (2012). Contratos Mercantiles Nacionales e Internacionales (Cuarta ed.). Bogotá: Temis. • Ravassa, G. J. (2001). Derecho Comercial, Bienes mercantiles. Bogotá: Ediciones Jurídicas Gustavo Ibañez. • Reglamento de Ley de Factura Negociable. (2011). Decreto Supremo Nº 047. • Roca Gillamón. (1976). El contrato de factoring y su regulación por el DerechoPrivado Español. Madrid. • Rodriguez, S. (2003). Contratos bancarios, su significación para América Latina (Quinta ed.). Bogotá: Legis Editores S.A. • Susfeld, L. (1968). Le Factoring. Paris: Presses Universitaires de France.

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Universidad Santo Tomás

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Oficina de Educación

Virtual USTA