Our factoring practice

Factoring – known in French law as “affacturage” – is the leading form of short-term business financing in France. Over 400 billion euros in receivables pass through factoring companies each year. Behind this flexible financing technique lies a dense contractual structure, combining conventional subrogation, outsourced receivables management and credit insurance against the risk of non-payment.

Our firm acts for all three parties in a factoring relationship: the assignor (adherent) who assigns its receivables, the assigned debtor who receives a payment demand from the factor, and the factoring company itself. Whether the dispute concerns the negotiation of a factoring agreement, a challenge to the factor’s recourse, or the management of insolvency proceedings, we provide advice grounded in hands-on experience of French banking law and commercial litigation.

Conventional subrogation – Article 1346-1, French Civil Code

“Conventional subrogation operates at the initiative of the creditor when the creditor, receiving payment from a third party, subrogates that party into its rights against the debtor.” This mechanism is the legal foundation of factoring under French law: each invoice payment by the factor transfers the receivable together with all its ancillary rights.

The factoring process in 6 steps

1

Framework agreement

2

Debtor approval

3

Invoice submission

4

Subrogation

5

Collection

6

Guarantee reserve

You are the assignor: securing and defending your financing

The assignor who signs a factoring agreement enters into a long-term relationship with a financial institution. The factoring commission, the guarantee reserve, the exclusivity clause, the termination conditions – each contractual clause has tangible consequences for the company’s cash flow and management flexibility.

Difficulties most often arise during performance of the contract. The factor withdraws approval for certain debtors, suspends advance funding, or debits unpaid receivables back to the current account. The assignor finds itself caught in a contractual mechanism it does not fully control.

Our firm handles

  • Auditing and negotiating factoring agreements before execution
  • Challenging abusive charge-backs and funding suspensions
  • Defending against sudden termination by the factor (60 days’ mandatory notice under Article L. 313-12, French Monetary and Financial Code)
  • Recovery of the guarantee reserve at the end of the contract
  • Protecting directors against personal commitments (personal guarantees)
  • Managing factoring arrangements during insolvency proceedings of the assignor

You are the assigned debtor: challenging or securing a payment

One day, the assigned debtor receives a notification stating that its invoice has been assigned to a factoring company and that payment must be made to the factor. This raises practical questions: is this payment actually due? Can set-off be raised? Was payment already made to the original supplier, and if so, does it discharge the debt?

The case law of the Cour de cassation is clear: payment made in good faith to the original creditor without knowledge of the subrogation is valid and discharges the debt (Cass. com., 15 October 1996, No. 94-16.302). However, once the debtor becomes aware of the factoring arrangement – even through a stamp on the invoice – payment must be directed to the factor.

Our lines of defence

  • Challenging the enforceability of the subrogation (absence of notification, lack of knowledge)
  • Raising set-off for prior or connected claims
  • Establishing that payment to the original creditor was valid and discharged the debt
  • Disputing the underlying receivable itself (defective performance, commercial dispute)
  • Defending against formal demands and court proceedings brought by the factor or its agents

You are the factoring company: advice and debt recovery

Factoring companies face recurring disputes: fictitious receivables, double mobilisation by the assignor, set-off raised by the assigned debtor, and conflicts with subcontractors invoking the direct action under the French Act of 31 December 1975. Recovering receivables acquired by subrogation requires a thorough command of the rules on enforceability and the defences the debtor may legitimately raise.

Our support

  • Drafting and reviewing general and specific terms of factoring agreements
  • Debt recovery litigation before the Commercial Court and Court of Appeal
  • Filing and admission of claims in the assignor’s insolvency proceedings
  • Managing conflicts with subcontractors (direct action under the Act of 31 December 1975)
  • Enforcing director guarantees and ensuring compliance with the annual guarantor notification requirement

The factoring agreement: a contract that requires close attention

Factoring is an innominate contract under French law: no statute defines it or sets out its regime. It is structured by market practice, built around a framework agreement and its schedules. The legal mechanism relies on conventional subrogation (Article 1346-1, French Civil Code) or, more rarely, on the assignment of trade receivables by Dailly bordereau (Articles L. 313-23 et seq., French Monetary and Financial Code).

Three main forms coexist: full-service factoring (financing, credit insurance and receivables management), confidential factoring (the debtor is not informed) and reverse factoring (initiated by the buyer). Each form produces distinct legal effects, particularly as regards enforceability against the assigned debtor and the factor’s recourse against the assignor.

Recourse vs. non-recourse factoring

In non-recourse factoring, the factor assumes the risk of the assigned debtor’s insolvency for approved receivables. This is the standard in France. In recourse factoring, the assignor remains liable for ultimate payment. The distinction determines the extent of the guarantee and the cost of the factoring commission (typically between 0.5% and 2.5% of the gross invoice amount).

Frequently asked questions

What clauses should I check before signing a factoring agreement under French law?

The exclusivity clause, the receivable approval process, the guarantee reserve rate, the termination conditions and the factoring commission. A poorly negotiated agreement can restrict your cash flow rather than secure it.

Can the factor terminate without notice?

No. Article L. 313-12 of the French Monetary and Financial Code requires a minimum of 60 days’ notice. A sudden termination engages the factor’s liability and may give rise to a claim for damages.

What can I do if the factor charges back receivables to my current account?

The charge-back is a contractual mechanism by which the factor debits your account for unpaid receivables. Its validity depends on the terms of the factoring agreement and, in insolvency proceedings, on the date the charge-back was effected. Consult a lawyer to assess your options.

I paid my supplier before learning about the factoring. Am I discharged?

Yes, if you had no knowledge of the subrogation at the time of payment. The Cour de cassation holds that good faith payment to the original creditor discharges the debt. The factor cannot claim a second payment from you.

Do you handle urgent factoring disputes?

Yes. We act in urgent interim proceedings (refere) before the Commercial Court where the situation demands it, particularly in cases of abusive suspension of funding or blocking of the guarantee reserve.