Invoice factoring vs discounting4/29/2023 ![]() ![]() 22 of 2004) (the “ Civil Code”) sets out specific provisions relating to the assignment of rights. Our view is that the inclusion of certain representations as recourse events should not impact the ‘true sale’ nature of the transaction.Īssignment of Invoices and Contracts (Legal Considerations)Įach invoice or contract that is subject to the factoring arrangement should be assigned to the bank. ![]() Therefore, the Seller will also provide a representation relating to the assignment having been perfected and a breach of this representation is included as a recourse event. In Qatar, especially in the context of contractor receivables, the assignment perfection procedures are difficult to complete. The bank does not assume the risk of performance by the Seller under the discounted invoice or contract. In other words, the only risk being assumed by the bank is that of the bankruptcy of the Debtor. Therefore, once the invoice or agreement has been validly assigned to the bank, the bank would have direct recourse to the debtor under the invoice or contract (the “ Debtor”), however, in the event of a dispute over the performance of the invoice or contract the bank will have recourse to the exporter or contractor (the “ Seller”). While under Qatari law factoring (in respect of invoices and contracts) can occur on a ‘with recourse’ or ‘without recourse’ basis, as a result of certain legal issues, banks typically opt to structure their invoice discounting product on a ‘limited recourse’ basis. Auditors usually require a legal opinion to confirm that a ‘true sale’ of the receivables has been effected. This treatment is possible if the receivables are sold on a ‘without recourse’ basis. One key commercial consideration for companies seeking to sell their receivables is for the receivables to be removed from their balance sheet as a debt and to appear as revenue that has been collected. This latter technique is referred to as ‘invoice discounting’. The same technique is also used for financing contractors and sub-contractors, where works have been performed or goods and services have been supplied and payment under the corresponding invoice is payable after a period of time (e.g. Typically, banks in Qatar act as factors and purchase receivables relating to the export transaction. Factoring is a financing technique that enables an exporter to collect the purchase price of the goods relating to an export transaction prior to the due date of payment. ![]()
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