| As a long-used financing tool, factoring
does not have a single, generally accepted definition.
The most important feature in its definition is the use
of factoring as a general term that refers to multi-faceted
financing services, and the diversification of those services
according to the conditions in the market.
Therefore, defining factoring only through the identification
of its functions, instead of using a single and precise
term, and having those functions individually identified
constitutes a better approach thereto. Below given is
such a definition derived from international descriptions
of the term.
"Factoring is an agreement encompassing one
or more of the financial services such as a service
function wherein the present or future receivables arising
out of invoices or other documents evidencing sales
of goods or services are assigned by the factoring firm
and are held under management of the factoring firm
within the frame of the wishes and demands of the parties
thereto; and a financial function incorporating prepayment
and pre-financing of such receivables; and a guarantee
function wherein the risk of non-collection of receivables
is transferred to and assumed by the factoring firm."
The definition given in the Decree in Force of Law
545 on Money Loan Transactions and the associated regulations
which constitute the infrastructure of factoring in
Turkey is as follows:
"Factoring company is a firm that assigns,
and assumes the risk of collection of, present or future
receivables arising out of sales of goods or services
as evidenced by invoices or other supporting documents,
and that prepays and pre-finances such receivables."
As will be understood from these definitions, factoring
is a unique financing method that can offer three services
in one package; namely,
- Collecting and Management of Receivables (Service)
- Prepayment and Pre-financing of Receivables (Financing)
- Assuming the Risk of Non-payment (Guarantee)
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