Turkey: The Regulation On Principles And Procedures To Be Applied In Factoring Operations

Introduction

The Regulation on Principles and Procedures to be applied in Factoring Operations ("Regulation") was published by the Banking Regulation and Supervision Agency ("BRSA") in the Official Gazette dated 04.02.2015 and numbered 29257. Notably, the Regulation entered into force prevailing as of 01.01.2015. The Regulation envisages the principles and procedures to be applied in factoring operations to be conducted by factoring companies and banks; the novelties introduced by such Regulation are examined below.

Avoidance of Duplicate Invoices and Cancellation of Invoices

The second section of the Regulation entitled "Avoidance of Duplicate Invoices and Cancellation of Invoices", stipulates certain obligations, and envisages various procedures for banks and factoring companies that are established in Turkey. Firstly, Art. 4 of the Regulation imposes a prohibition that aims to avoid operations, which are not based on an invoice. In this sense, the Regulation sets forth that financing shall only be provided to clients in return for invoices that are issued for their goods or services. Furthermore, the Regulation sets forth that the total amount of such financing, and income (such as commission or interest) generated therefrom shall not exceed the amount noted on the invoice, subject to the factoring transaction. In the event that the factor pays 100% of the invoice amount, an additional sum for commission and interest can be recovered, separately. The clients shall not be exposed to minor differences arising out of the rounding up of the invoice amount, and the sum stipulated on the bill of exchange, or other similar instruments. Additionally, banks and factoring companies that are established in Turkey shall not issue additional invoices for exchange differences generated on the date payment is made.

Article 5 of the Regulation sets forth an enquiry system to be established by factoring companies and banks. According to this, banks and factoring companies that are established in Turkey shall be obliged to conduct the enquiry, stipulated under such article, regarding their clients and related invoices. Pursuant thereto, factoring companies and banks shall not be contented with the verbal declarations of their clients; yet, they shall provide enquiries on client information. Such enquiry shall be comprised of, at minimum, the below:

  1. Inspection of invoice information, along with a compliance check of the contents with the provisions of related regulations as to format and disposition of the invoice,
  2. Establishment of an internal checking system that monitors the status of the invoices, with a Central Invoice Registration System which avoids the production of duplicate invoices,
  3. Assessment of the status of their clients, with the aid of their financial conditions and investigation of former financial operations, via consulting with the debtors of the invoices and drawers of the bills of exchange.

Know-your-customer check procedures listed in the Regulation are the minimum requirements, and the banks and factoring companies established in Turkey are not limited by them in the enquiry of their clients. They may utilize other methods, as well.

In order to avoid producing duplicate invoices, the Regulation envisages yet another special obligation in its 6th Article. As per such Article, banks and factoring companies that are established in Turkey shall be obliged to inspect the notification form signed by clients (or their signatories) along with the invoice information, and check whether the invoice being examined is a duplicate or not, through the Central Invoice Registration System. Furthermore, the images of such invoices shall be stored by banks and factoring companies in order to be used and checked against in potential audits. The expression of the "image of invoices", stated in the aforementioned article, introduces a new concept to Turkish law. The word "image" may be interpreted as the copy of the invoice at stake, obtained in any manner. According to this interpretation, the Regulation envisages a new opportunity for factoring companies and banks allowing them to archive the images (scanned copies or digital images) of the invoices in electronic databases. However, due to the fact that a photocopy is also a form of image obtained from the original invoice, the same provision may be deemed to include the photocopy (hard copy) of the invoice in question. We consider that the application and implementation of such provision shall be clarified in time.

Another novelty the Regulation introduces concerns the cancellation of the invoices. Pursuant to Article 7 of the Regulation, the factoring companies or the banks performing factoring operations shall be obliged to obtain a letter of undertaking from their clients, stating that upon issuance of new invoices following the cancellation of initial invoices, they shall submit such new invoices to the factoring company or to the bank. As per the second paragraph of such provision, the factoring company or the bank shall inform its clients in this regard, and must obtain this undertaking in the form of a "notification form" that shall be a standard form announced by the BSRA.

Bills of Exchange and Other Bills

The third section of the Regulation entitled, "Received Bills of Exchange and Other Bills," governs the points to consider by factoring companies and banks in the event of receiving bills of exchange or other types of bills in reference to invoice receivables. In such events, the factoring companies and banks shall investigate and bear in mind that the drawer of the bill of exchange or other type of bill shall be the same person as the person stated to be the creditor on the invoice. Additionally, the person before the drawer shall be the same person stated as the debtor in the invoice.

Additionally, Article 8 of the Regulation stipulates certain requirements in order for factoring companies and banks to receive additional bills of exchange and other bills from their clients, other than the ones related to invoices.

Transfer of Potential Receivables

Pursuant to Art. 9 of the Regulation, in order for factoring operations to account for potential receivables, (i) the transferred receivables must be certified by invoice or other documents substituted for an invoice, (ii) the factoring companies and banks will confirm the information on an invoice or other documents substituted for the invoice on the date of the commencement of the receivable.

The second paragraph of the same provision stipulates the conditions for the acquisition of receivables arising out of the sale of goods or services. Such conditions are as follows:

  1. Factoring companies and banks shall conclude agreement with their clients that include the definition of the work, quality of the receivable, maximum factoring limit and payment requirements.
  2. The matters concerning the potential receivable shall be certified via other documents, such as an agreement signed by the client and the debtor, an order form, a pro forma invoice or letter of credit.
  3. The accuracy and validity of the documents and information proving the commercial relation between the debtor and the client, as well as the fact that the receivable to be transferred will arise out of such commercial relation, shall be checked and evaluated.
  4. The factoring companies and banks shall obtain the invoice or other documents substituting the invoice that shall be issued following the production of the receivable from the client, and shall submit such documents to the relevant operations file.

Preservation of the Documents

In accordance with Art. 10 of the Regulation, factoring companies and banks that are established in Turkey shall be obliged to preserve the information and documents related to the factoring operations, which are obtained upon the conclusion of their investigation and enquiries, for a minimum period of five years, provided that such period is no less than the durations envisaged under other related regulations. The preservation obligation for minimum five years, stipulated under this provision, shall not constitute a novelty for banks active in factoring operations. This is because, according to article 42 of the Banking Law numbered 5411, the banks operating in Turkey are already obliged to preserve the documents related to their operations for a period of ten years. Therefore, the preservation obligation for minimum five years, which is envisaged in the Regulation, shall solely be considered as a novelty for the factoring companies.

Conclusion

The Regulation introduced new principles and procedures for factoring companies and banks that are established in Turkey, enquiry obligations, a minimum five-year period of preservation of documents obligation, and conditions for the acquisition of receivables arising out of the sale of goods or services. Such provisions are significant for the entities that provide factoring services and should be taken into consideration by factoring companies and banks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions