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Turkey: Factoring transactions update

Muharrem KüçükTolga Çabakli
The new regulation on Principles and Procedures Applicable to Factoring Transactions (Regulation) was published by the Banking Regulation and Supervision Agency on February 4 2015 (Official Gazette 29257). The Regulation includes provisions related to: (i) invoicing; (ii) provision of negotiable instruments; (iii) assignment of future receivables; and (vii) retention of documents.

The Regulation aims to prevent any fictive factoring transactions. It is prohibited to enter into any factoring transaction without a genuine invoice or a document which is also treated as the invoice. Banks and factoring companies incorporated in Turkey (Institutions) are required to inspect transactions to verify whether invoices are repeating or recurring, through the Central Invoice Record System. Additionally, if an invoice has been cancelled, clients must notify the Institutions and for the provision of new replacement invoices an undertaking must be provided by clients.

According to the Regulation, if negotiable instruments relating to the invoice are submitted to the Institutions, the person endorsing such negotiable instruments to the Institutions must be the the creditor issuing the invoice and the previous endorser or the issuer of the negotiable instrument must be the debtor to whom such invoice is addressed. The amounts stipulated in the invoice and the negotiable instruments relating to said invoice must be the same.

Negotiable instruments that are not related to the respective invoices assigned may also be provided as collateral. In order to liquidate negotiable instruments provided as collateral: (i) there has to be an event of non-payment at the relevant maturity date; (ii) Institutions must not provide any additional financing to their clients or beneficiary of such negotiable instruments; and (iii) Institutions must record in their books that the negotiable instruments provided as collateral were received to secure the relevant debt.

Moreover, in case of liquidation of negotiable instruments as collateral, receivables to which the negotiable instruments relate must be categorised in the account of receivables to be liquidated or receivables in nature of loss, specific reserves must be set aside and the process of legal enforcement must be initiated.

In order to assign future receivables to Institutions, the following requirements must be met: (i) the client and Institution must enter into an agreement for the assignment of such receivables which must include the factoring limit and payment conditions; (ii) future receivables must be verified with an agreement made by and between client and Institutions, an order form, pro forma invoice or letter of credit; (iii) a relationship regarding sale of goods or provision of services must be checked by the Institutions and duly documented; and, (iv) an invoice or document which is also treated as the invoice must be submitted to the Institutions just after the receivable arises.

Institutions must retain the documents relating to factoring transactions for the applicable period set out in legislation, which may not be less than five years.

Muharrem Küçük and Tolga Çabakli

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