Turkey: Factoring law principles

Author: | Published: 30 Oct 2015
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Işıl Ökten Yasemin Güçkan

The Law on Financial Leasing, Factoring and Financing Companies no 6361 (Law), which entered into force on December 13 2012, regulates the establishment and working principles of financial leasing, factoring and financing companies.

Under the Law, a factoring company must be established in compliance with certain conditions. These conditions include: minimum paid-up capital of TL 20 million ($6.8 million); a transparent and open partnership structure; and the directors of the company must have certain qualifications. The establishment of such a company will be permitted upon the approval through the affirmative votes of at least five members of the Banking Regulation and Supervision Agency (BRSA). Factoring companies must also obtain operating permission from the BRSA.

There are no specific types of factoring under the Law, however, in practice, factoring is divided into four different types:

  • disclosed and undisclosed;
  • prepaid and non- prepaid;
  • recourse and non-recourse; and,
  • domestic and international.

According to article 9(2) of the Law, the receivables must originate from the sale of services and goods of the customers during the term of the factoring agreement. There are no restrictions on the maturity of receivables. The factoring company is also allowed to negotiate the extension/restructuring of payment terms after purchasing relevant receivables, since the principal and secondary rights of the relevant transaction are transferred to the factoring company.

There is no registration process for assignments in Turkey. Further, notification is not required to realise a valid assignment against a debtor or third-party creditor. The only requirement to achieve a valid assignment is that the agreement must be made in written form.

Under Turkish law, it is possible to assign future receivables as well as existing receivables.

In the event of a contractual prohibition against the assignment of receivables, the debtor may refuse to make a payment to the factor.

Işıl Ökten and Yasemin Güçkan