The Legal Risks And Its Prevention Of The International Factor

As a new forward-looking synthetic service of finance, the international factoring has a significant role to play in the development of the international trade. As an important practicer and accumulator of the international factoring, the factors face the seriously legal risk. Knowing how to prevent the risk is very important to the arising service, the thesis tries to probe into the methods of prevention of the legal risk of the factors. The paper consists of four part.Part I , it gives a summary of the international factoring. The international factoring has been definited clearly as a new service of finance which performs one of the following functions at least: finance for the supplier, maintenance of accounts relating to the receivables, collection of receivables and protection against default in payment by debtors[0]. The accounts receivable comes from the contracts of sales of goods made between the supplier and the debtor whose places of business are in different States. This part is composed of 3 types of the categories of the international factoring: (â…°)Recourse factoring and non-recourse factoring; (â…±)Maturity factoring and advance factoring; (â…²)Whole[0] turnover factoring and facultative factoring.Partâ…¡, this section indicates the theoritical foundation of the law of international factoring, and then takes an systemic analysis of the legal relationships between the factor and the other parties of different factoring contracts. On the basis of generalizing present theories of the international factoring, there are 3 theories about the legal foundation ,such as the theory of entrusting, the theory of impawning and the theory of transferring. Compared with the other two theories, the theory of transferring could explain the four functions of the international factoring in a whole. Drawing from the analysis of its practical operation and economic functions, we come to the conclusion that international factoring is based on the transfer of the receivables. There are three groups of relationships[0] among the factors and the other parties, all the above relationships could be divided respectively as followings, the legal relationship between the Export Factor and the supplier, the legal relationship between the Export Factor and the Import Factor, the legal relationship between the Import Factor and the debtor.In accordance with the export factoring agreement, the supplier owns the rights of getting the finance and the protection against bad debts. The main obligation of the supplier includes a guarantee obligation, a notice [0] obligation, transferring[0] the accounts receivable to the Export Factor, and accepting the reassignment of receivables. The Export Factor have the rights of suspending to pay for the bad debts, reassigning the accounts receivable, reducing or canceling the credit line, requesting the supplier to provide related documents and information. The Export Factor have the obligation of requesting the Import Factor to appraise the credit risk and the normal payments terms, accepting the assignment of receivables, managing the ledger relating to the receivables. And[0] also,the Export Factor have the obligation of information notifying.The legal relationship between the Export Factor and The Import Factor is mostly adjusted by GRIF rules. In accordance with the interfactoring agreement,the Export Factor has the rights of requesting the Export Factor to protect against the bad debts in the scope of credit line which is approved by the Import Factor, requesting the Import Factor to notify the form of transferring of the receivables. The obligations mainly includes delivering related vouchers, transferring the accounts of receivable, and the obigations of notice, guarantee, accepting the reassignment of receivables.The Import Factor has the rights of requesting the Export Factor will transfer all rights and interests related to receivables to the Import Factor in some approches; the rights of reducing or canceling the credit line, the rights of reassigning receivables, and the right of rejecting to protect against the debts. The Import Factor is entitled to reimburse the amount paid under certain conditions. His obligations mainly includes assuming the credit risk, managing the accounts of receivables, collecting the receivables and transferring the funds in time. The Import Factor also has the obligation of protecting against bad debts, notifying the form of transferring receivables and practicing[0] his rights in good faith.There is no contract between the Import Factor and the debtor, the legal relationship between them is formed by collecting receivables of the Import Factor in deed. The Import Factor has the rights to carry out the account receivable including the rights of collecting and appendix rights. At the meantime, he also has the obligation to reimburse the amount which the debtor paid in mistake. The debtor has the rights of raising a defense, counterclaim or set-off., and still has the obligation to pay for the account receivable.Partâ…¢makes a legal analysis of the legal risk of the Export Factor and its prevention The legal risks mainly includes the credit risks, the risks from the contract, the risks from the transferring of the receivables and the risks from the Import Factor. Some practicable measures of preventing above risks are provided as followings:(â…°)To the credit risks, the Export Factor has best to evaluate the credit of supplier exhaustively to make sure that the credit of the supplier is in good condition.(â…±)To the risks from application of law, the Export Factor should request the application of GRIF in the export factoring contract, and try to bring some articles into the contract, which is benefitble to himself (â…²)To the risks from the contract, he should make a good evaluation of the qualification of the parties of the contract, fulfilling contract conditions, trade histories, especially focus on whether both the parties are affiliated enterprises or not., then, making the supplier to promise that the contract is valid and legitimate. If the promise would be breached, the Export Factor may reject to protect against bad debts.(â…³) To the risks from transferring receivables, the Export Factor should stipulate the payment for the account receivable exactly, make sure that the expression briefly and definitely. He should also make the supplier guarantee the account receivable transferred.(â…´)To the risks from the Import Factor, he should stipulate reasonable articles to restrict the the rights which is inclined to benefit the import Factor. [0]Furthermore, the Export Factor should make arrangement in the export factoring contract in advance to reply to the risks from the Import Factor.Partâ…£analyzes the legal risks to the Import Factor and provides practicable measures to prevent those risks. The Import Factor usually faces the risks which includes credit risks, the risks from the transferring of the account receivable, the risks from the application of law and the settlement of the disputes, the indirect payment from the debtor, and the fake disputes put forward by the debtor. Some practicable measures to prevent those risks are listed as follows:(â…°)To[0] the credit risks, the best way to prevent these risks is to make a exhaustive assumption of the credit risks of the debtor, make sure the credit of the debtor is in good condition.(â…±)To the risk of transferring the account receivable, the Import Factor should demand that the fact, that the account receivable has been assigned to the Import Factor, must be notified to the debtor in good time. It is suggested that the Edifactoring system should be used to deliver the related documents.(â…²)To the risks from the application of the law and the settlement of the disputes, in the long-term[0], he should master the law applicable and have a good use of it. The short-trem method is to bring the articles benefitable himself into the factoring agreement. It is suggested to submit the disputes to the FCI which will make a settlement according to Rule of Arbitration.(â…³)To the indirect payment of the debtor, the Import Factor should make sure that the notice of the transferring of the account receivable must be taken to the debtor accurately and in time. In order to adjust the credit line, the Import Factor may request the supplier or the Export Factor to notify him when the indirect payment is accepted[0]. (â…´)To the risk of the fake disputes, the Import Factor should distinguish the disputes at the beginning, and then commutate with the Export Factor to settle the disputes. The Import Factor should also make a good use of the rights entitled by the GRIF if the disputes exist[0] in fact.