Research On Legislation Issues In Assignment Of Accounts Receivables In The Factoring Business Of Commercial Banks In China

Modern factoring is a new model of comprehensive financial service whichincorporates financial management, trade finance, receivable collection and protectionagainst bad debts. Since the view of assignment of receivables could offer fullyexplanation of various functions and relationship between the functions of factoringbusiness, it is thus thought to be the core of factoring business.Factoring business plays important role in corporate financing in these rougheconomic times with its particular predominance. For the moment, there are plenty ofreasons for the late development of factoring business of commercial banks in China.The primary reason that restricts its growth is the high risk sourced from inadequatelaws. As assignment of receivables is the core of factoring business, prevention of legalrisks in factoring business is focusing on receivables. It is the fact that legal entities infactoring business include commercial banks, creditors of receivables, debtors ofreceivables and that legal issues in factoring business include not only contractualrelationship of sales of goods between creditors and debtors of receivables andcontractual relationship of factoring between commercial banks and creditors ofreceivables but also claims and liabilities between commercial banks and debtors ofreceivables after the former have taken the assignment of receivables. Therefore,problem prevention matters much for factors, vendors and creditors in factoringbusiness. Especially that commercial banks would suffer severe losses caused by baddebt of receivables if they fail to prevent legal problem from assignment of receivables.Problem prevention during the assignment of receivables is the top priority in problemprevention of factoring business of commercial banks. In the current situation, probleminvolve authenticity problem of receivables, validity problem of receivables, problemsthat receivables could not be recovered, problems of defects of rights of receivables,problems of multiple transfers of receivables and operation problem of assignment ofreceivables.In response to those risks during the assignment of receivables, factors shouldmake sure of the authenticity and there are no defects of rights or multiple transfers ofthe accounts receivable by reviewing strictly. Factors should demand creditors makecommitment to the authenticity, transferability, completeness and uniqueness of theircredits. On that basis, factors should examine creditors rigorously to control risks. Some provisions of the General Rules of Civil Law and the contract law haveprovide better legal norm to the assignment of receivables in factoring for commercialbanks in China. Provisions of assignment of credits in the contract law build legalframeworks for assignment of receivables of factoring business. To keep up with thedevelopment of factoring business of commercial banks and to build more specializedlegal frameworks that is more international integration for factoring business ofcommercial banks in China, the content of the contract law should be continuously inrevision and consummation in un-transferable credits, entities of credit-transfer-notice,credit-transfer-contracts to be utilized to factoring business of commercial banks.