|Işıl Ökten||Lara Battal|
Supplier finance is a global finance method that is an integral part of the services offered by Turkish financial institutions. This finance method facilitates cash-flow from the buyer to the supplier, while allowing the buyer to lengthen its payment terms to the supplier. At the same time, it gives the supplier the option to get paid early. The four stages of supplier finance may be summarised as follows:
- the buyer purchases goods and/or services from the supplier based on a trade relationship. In return, the supplier issues an invoice to the buyer;
- the buyer checks and approves the invoices;
- upon procurement of the approved invoices, the bank immediately makes payment to the suppliers on, or prior to, the invoice payment date;
- on the invoice payment date or at a later date, depending on the agreement, the buyer pays the whole amount of the invoice to the bank instead of the supplier.
The critical point of the application of this finance method in Turkey occurs when international financial institutions aim to provide the service from abroad. In this case, the following points of Turkish legislation should be taken into consideration:
- If the supplier finance is structured as a loan, regulations regarding the extension of cross-border loans into Turkey should be taken into consideration. Pursuant to article 17 of Decree No. 32 regarding the Protection of the Value of the Turkish Currency, residents of Turkey may freely obtain loans from abroad provided that they utilise the loans through banks. Further, the Circular on Capital Movements dated January 2 2002 states that such loans must be utilised through banks located in Turkey.
- If the supplier finance is structured as a factoring product, it should be noted that in accordance with the provisions of the Financial Leasing, Factoring and Financing Companies Law No. 6361, only licensed factoring companies may buy debts arising from the sale of goods or services which are documented with an invoice in Turkey.
Accordingly, there are ways to structure supplier finance using the available legal tools in compliance with Turkish laws. The involvement of banks or factoring companies located in Turkey may be necessary depending on the structure.
Işıl Ökten and Lara Battal
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