A Study On The Legal Risk Control Of Business Factoring In China

With the increasing demand of business factoring market, related policies have been published by the department in charge. Business factoring have been developed rapidly. Since the lack of establishment rules, functional rules and monitoring rules in current legislation, the supporting mechanism of business factoring also need to be improved.This paper has been divided into four parts. First of all, it has introduced the concept and classification of business factoring, while analyzed management approach of business factoring pilots. The factoring activities of business factoring companies are usually known as business factoring. In domestic trade, business factoring could provide one or more kinds of services which based on the receivable accounts reduced by the basic trade, while provided services such as trade financing, receivable accounts management and credit risk control. Then the author analyzed business judicial practice at present stage in China.Secondly, the author summarized the rise of business factoring of other countries, then compared and analyzed the operational environment and mode of business factoring. The reason why the factoring industry developed rapidly in Europe and the United States was the good environment of law, technology and credit. Western Europe has the system foundation to promote the development of the factoring industry. The system of insurance, banking, business and law are perfect, and the relevant laws and regulations are equipped with effective legal means of implementation. Its mode of operation is a kind of "all factoring" mode in foreign countries, domestic factoring is the main business mode of business factoring. China carried out a series of innovation of factoring products. Compared the laws and regulations with other countries’, combined with business factoring legal practice in China, the author summarized the experiences that our country could learn from other countries. Experiences of foreign countries are different. In America, factoring industry rose early. In American judicial practice, they have accumulated lots of practical experience, they have rich resources of factoring cases. American law claimed that the transfer must be notified to the debtor. With the development of American factoring, factoring was treated as the sale of the creditor’s rights, and treated the receivable accounts as collateral, factoring businessman has security interests. Factoring law of other countries have reference significance to our country, we can learn the provisions of notice of assignment in the British law, imitated the United States central registration system, established business factoring registration system, imitated the United States to establish series of detailed provisions which can provide legal basis for business innovation, imitated the experiences of French to establish a new system.Thirdly, the existing law lacks regulations about business factoring, applicable problems also exists in relevant laws, it would affect the realization of participants’ right, and there is no legal basis for factoring business activities to be carried out in order, the author advocated to make up for the gaps in existing laws and perfect the laws. At present, the credit management of factoring business depend on the clause of receivable accounts in the property law, problems of registration also appeared, because it has no judicial explanations. Contract risk of business factoring activities was usually that the factoring contract could not be established due to the lack of necessary conditions. In China, if domestic factoring is in the absence of foreign factors, according to the provisions of the procedural law of treaties, international conventions and international practices cannot be directly applied in our country. The Convention was produced in the western economic system, and the system has differences with China’s. We should make conflict resolved rules according to our situation. Business factoring is faced with new problems in the current stage of development, the potential risk of business factoring at this stage is the confusing of the transferring of creditor’s rights and debt. In the aspect of supervision, some areas have introduced factoring business management rules, issued regulatory norms specifically for business factoring, but operational rules have not been specified, so the regulation lacked specific basis. Human factors in the regulation would be more obvious, it is difficult to judge whether the supervision is appropriate or not. Many business factoring companies also do other business, some factoring companies tried to circumvent regulatory. Some areas have issued business factoring management rules, focused on all aspects of business factoring and then established general provisions, but the specific details have not been provided. Without specific operational guidance is difficult for the supervision. At present in China, Banking Regulatory Commission and the People’s Bank of China are responsible for the circulation of money and credit regulation. The Commission of Commerce is responsible for the supervision of business factoring companies, hence the crossing industry regulation is necessary, but the actual operation is difficult.The business factoring developed rapidly, but not reasonably, and the threshold of business factoring companies’ registration is low. The factoring business was combined with P2 P business, but the regulatory responsibilities of them are not be distinguished clearly, some drawbacks of Internet finance would be brought into the factoring business, illegal fund-raising and illegal absorbing of public deposits also occurred sometimes. Compared with the business bank factoring, business factoring has its own advantages in many aspects. Banks have a huge risk control system, so they have strong risk control ability, and they can select better customers. Business factoring required higher professional technical and business knowledge, it also need to be invested a lot of energy, the banks’ main service is not business factoring, the business factoring companies are better than the banks in this aspect. The current situation of the industry also led to the risk, the author tried to put forward solutions from the perspective of contract.Factoring business relates to the buyers, the sellers, the business factoring companies and other parties, the operation of business is based on the credit of enterprises. Once the credit problems appeared, factoring financing would not be carried out smoothly. At present, our country has not established an effective social credit system, so the factoring companies are unable to obtain related credit information.At the same time, transferring channels for the factoring companies’ risks are very limited. It is necessary to establish the social credit system to guard against the risks.Finally, based on the comprehensive analysis and discussion, specific legislation on business factoring should be done, we can refer to the regulation in the pilot areas. The detailed provisions of the receivable accounts’ registration in the "property law" should be perfected. And making the notice should not only be the debtor’s obligation, it should be the right of the assignee too. Specific representations of violations in the process of business factoring should be detailed in "criminal law". Then detailed the formulation of the regulatory authorities’ responsibilities in order to make the regulatory body’s rights more clearly, the efficiency of supervision also would be improved. In order to manage the risks of the factoring contract effectively, before signed the contract, the business factoring companies should take a careful review of the basic contract, when signed the contract, the factoring companies should request the sellers to make a commitment in the contract in order to reduce losses. Compulsory registration is a prerequisite for effective supervision on business factoring enterprises. We should establish and perfect the receivable accounts’ registration system, the contents of the registration and the process of registration should be detailed in the law, then forced the enterprises to register in the system. Factoring activities involved many industries and sectors, if all of them cooperated appropriately, risks would be effectively reduced. We should strengthen self-discipline and self-risk control. Business factoring companies should choose factoring mode carefully.Finally, the mechanism which matched with business factoring should be established, the author advised to establish a widely covered and easily operated registration system, then improved the credit insurance of business factoring as soon as possible. The matched policies should be issued to support the credit insurance, then improved the social credit system. Learned the advanced experience from other countries, then established a database for credit information and bring it further in line with international standards.