Factoring - Instrument of financing in business practice -some important legal aspects

Abstract

Succesful business practice needs constant sources of financial means. One of the biggest problems of business practice is how to provide these financial means. Among many other methods, business practice is using factoring as a method of financing. Factoring, as a special method of financing, is realised in practice by factoring contracts. Factoring contract is a legal transaction based on the institute of assignment, under which the creditor assigns its receivables to factor (generally specialized companies). Factoring has some common functions, first and most important of these functions is the function of financing (of the supplier). Other functions of factoring like advance payment, book keeping, regarding claims, collecting of the claims, protection against failures of payment are also very important. Commercial practice has developed numerous forms of factoring agreements. In spite of their diversity, all kind of factoring agreements have certain common characteristics in terms of their subject mater, conclusion, effect, termination etc. The factoring contracts are not fully encompassed by existing provisions of the law, but are regulated under the UNIDROIT Convention on International Factoring. In this article, the autors are analizing characteristics of factoring and the factoring contract.