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Premise:

Invoice factoring is a transaction in which a factor (or factoring company) purchases invoices from a business. The transaction involved is literally purchasing receivables and, for accounting purposes, the payables are classified as trade debt and not financial debt.

Invoice factoring (and other variations of this scheme such as supply chain finance) is used as a form of financing for suppliers to get cash in advance and for buyers to get better payment terms.

Understandably, in many countries factoring companies would be required some financial service license in order to operate business. For instance, in Singapore they would need a moneylender's license unless they are already in possess of a banking license.


Question:

In general, would a firm need some license to factor international invoices? Sure it's a form of financing, but the operation involved is literally purchasing invoices...

Would the factor need some financial service license in the country where the invoice is issued to? Or maybe some import/trade license in the country where the invoice is issued to? Or... ?

To make it all more clear, think of this example:

I am a factor based in Singapore, and I am purchasing invoices issued by a supplier in Thailand to a buyer in Indonesia.

If all these countries have annoyingly stringent regulations, I'm guessing I might need some business license (maybe for import/export) in Thailand, and some moneylending license in Indonesia. But do I need any license at all? I'm "just" taking over a pre-existing trade, and the physical goods have already been shipped.

  • here I am reading that in international trade finance transactions "the parties need to choose a law to govern the associated financial agreement. Since there is no unique international law applying to transnational relationships, the international contract will be governed by the national legal system chosen by the parties. In other words, the chosen law expresses the parties’ choice as to what the law related to their agreement should be." – moumous87 Jan 30 at 13:41
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    unless local law says it can’t be contracted out of - many do. – Dale M Jan 30 at 20:28
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In general, would a firm need some license to factor international invoices? Sure it's a form of financing, but the operation involved is literally purchasing invoices...

Would the factor need some financial service license in the country where the invoice is issued to? Or maybe some import/trade license in the country where the invoice is issued to? Or... ?

Usually, intangible assets for localized for regulatory purposes and jurisdictional purposes, to the jurisdiction of their owner.

If a firm in Thailand is owed a debt, transactions in that debt are usually subject to the financial regulations of Thailand.

If the debts are sold to buyers in Indonesia, the sale to the buyer, or at least, the anti-fraud provisions related to the sale to the buyer, are usually also subject to Indonesian law.

Businesses are also usually subject to the laws of the place where they operate.

So, a sale of debt owed to a firm in Thailand to a buyer in Indonesia, by a firm in Singapore would likely be subject to licensing and regulatory requirements in Thailand, Singapore and Indonesia.

Firms engaged in financial transactions and securities transactions (of which factoring is a specialized subset) are usually subject to the licensing and legal requirements of the issuer's jurisdiction, the buyer's jurisdiction, and the broker's jurisdiction (and routinely obtain licenses in all of these jurisdictions). I would not expect factoring to be an exception to this general rule.

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There are 190+ sovereign nations in the world - generalization is not possible

However, if it’s legal in each relevant country, there’s no reason to believe it wouldn’t be legal between them. That said, the risk involved increases massively as cross-border enforcement is considerably more difficult than the already difficult single jurisdiction enforcement.

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