Our factoring services

Factoring is the leading short-term financing method for businesses in France. More than 400 billion euros of receivables pass through factoring companies every year. Behind this flexible financing technique lies a complex contractual arrangement that combines contractual subrogation, outsourced management of receivables and a guarantee against the risk of non-payment.

Our firm acts for all three parties involved in the factoring relationship: the member assigning its receivables, the assigned debtor receiving a demand for payment from the factor, and the factoring company itself. Whether the dispute concerns the negotiation of a factoring agreement, the contestation of a factor's recourse or the management of collective proceedings, we provide a response based on an effective practice of banking law and commercial litigation.

Contractual subrogation - article 1346-1 of the Civil Code

«Conventional subrogation occurs on the creditor's initiative when the creditor receives payment from a third party and subrogates that third party's rights against the debtor». This mechanism is the legal basis of factoring under French law: each payment of an invoice by the factor results in the transfer of the receivable and its accessories.

The factoring process in 6 stages

1

Framework contract

2

Approval of debtors

3

Delivery of invoices

4

Subrogation

5

Recovery

6

Retention period

You are a member: securing and defending your financing

When members sign a factoring agreement, they enter into a long-term relationship with a financial institution. The factoring commission, the holdback, the exclusivity clause, the conditions of termination: each clause in the contract has concrete legal effects on the company's cash flow and management freedom.

Difficulties most often arise during implementation. The factor withdraws the approval of certain debtors, suspends advance financing, reverses unpaid receivables on the current account. The member finds himself caught up in a contractual mechanism that he has little control over.

Our firm handles

  • Audit and negotiation of the factoring agreement before signature
  • Challenging abusive reversals and funding suspensions
  • Defence in the event of sudden termination by the factor (60 days' notice, art. L. 313-12 of the French Monetary and Financial Code)
  • Return of the retention money at the end of the contract
  • Protecting directors against personal liability (guarantees)
  • Management of factoring in the event of a member's insolvency proceedings

You are an assigned debtor: contesting or securing a payment

One day, the assigned debtor receives notification that his invoice has been assigned to a factoring company and that payment must be made to the factor. This situation raises a number of practical questions: is the payment due? Can set-off be invoked? Does the payment already made to the supplier discharge the debt?

The case law of the Court of Cassation is clear: payment made to the original creditor without knowledge of the subrogation discharges the factor (Cass. com., 15 October 1996, no. 94-16.302). On the other hand, as soon as the debtor is aware of the factoring - even if only through a stamp on the invoice - it must pay the factor.

Our areas of defence

  • Challenging the enforceability of subrogation (lack of notification, lack of knowledge)
  • The exception of set-off for prior or related claims
  • Proof of payment in full discharge to the original creditor
  • Contesting the claim itself (failure to perform, commercial dispute)
  • Defending against formal notices and summonses issued by the factor or its agents

You are a factoring company: advice and collection

Factoring companies are faced with recurring disputes: fictitious receivables, double mobilisation by the member, opposition to set-off by the assigned debtor, conflict with a subcontractor invoking the direct action of the law of 31 December 1975. The recovery of debts acquired by subrogation presupposes a mastery of the rules of enforceability and the objections that the debtor may validly raise.

Our support

  • Drafting and revising the general and special conditions of the factoring contract
  • Debt collection litigation before the Commercial Court and the Court of Appeal
  • The declaration and admission of claims in the member's insolvency proceedings
  • Managing disputes with subcontractors (direct action, Act of 31 December 1975)
  • Enforcement of the executive's guarantee and annual information to the guarantor

The factoring contract: a contract to master

Factoring is an unnamed contract in French law: there is no legal text defining it or setting out its rules. It is structured by the practice of financial institutions, around a framework contract and its annexes. The legal mechanism is based on conventional subrogation (article 1346-1 of the French Civil Code) or, more rarely, on the assignment of professional receivables by Dailly (articles L. 313-23 et seq. of the French Monetary and Financial Code).

There are three main types of factoring: traditional factoring (financing, guarantee and receivables management), confidential factoring (the debtor is not informed) and reverse factoring (at the buyer's initiative). Each type of factoring has its own legal effects, particularly in terms of its enforceability against the assigned debtor and the factor's recourse against the member.

Factoring with or without recourse

Without recourse, the factor assumes the risk of insolvency of the assigned debtor for approved receivables. This is standard practice in France. With recourse, the member remains guarantor of the final payment. The distinction determines the extent of the guarantee and the cost of the factoring commission (between 0.5 % and 2.5 % of the amount (including VAT) of the invoices assigned).