The concept of factoring as a novelty in the business practice of the Republic of North Macedonia was introduced in 2010 with the Law on Financial Companies. Although no separate Law on Factoring has been adopted yet, it is additionally regulated by the Law on the National Bank of Republic of North Macedonia, the Law on Foreign Exchange Operations and Obligation law.
According to the Macedonian laws, in general factoring is defined as a short-term form of funding based on selling accounts receivables (invoices) at a discount, that are with due date of 30 to 120 days, and which derive from the sale of goods and services.
There are still only a few companies in Republic of North Macedonia that provide factoring services and it is still an unknown instrument in the real sector.
WHAT IS FACTORING?
Factoring as a financial instrument is provided by the Law on Financial Companies, according to which, factoring is a financial activity in which, based on a written agreement, the financial company (factor) buys the assigned receivables of another domestic or foreign legal entity (creditor), with or without the right of recourse.
Factoring includes the sale of invoices and their conversion into cash, which improves liquidity without showing increased debts in the balance sheets and without additional provisions. It also provides a fast access to funds based on delivered goods or services, and at the same time it provides the opportunity to bridge the delayed payment days and offers good cooperation with customers.
As it was previously stated, factoring is regulated with the Law on Financial Companies, since there is no Law on factoring yet. For everything that is not regulated by the Law on Financial Companies, the provisions of the Law on Obligations apply.
Factoring as a financial activity is also provided in Article 7 of the Law on the National Bank of Republic of North Macedonia (NBRNM) and the bylaws of the NBRNM, according to which banks can perform lending in the country and abroad, including factoring and financing of commercial transactions, according to criteria and conditions that are regulated in accordance with the bank's policy and legislation.
HOW DOES FACTORING WORK?
The first thing to point out is that in the Republic of North Macedonia there is still no factoring culture. Namely, factoring is offered as a service by an insignificant number of financial companies, while it is not yet widespread among financial institutions, such as banks. Therefore, there are some differences between the conditions that are imposed by the factors and the conditions that are regulated with the Laws mentioned earlier.
Namely, the companies that offer factoring may or may not impose more conditions than those required by the law. For example, the law states that in the event of assignment of a claim, the creditor must notify the debtor regarding the cession, but he does not have to require consent from the debtor about the cession. But the previously mentioned financial companies require a consent confirmation from the debtor. This means that the debtor needs to sign the notification if he received the product or service and is satisfied with their use, i.e. he is waiving the right to object the invoice, otherwise the factor will not buy the said invoice.
The creditor may assign its claims by an agreement concluded with the bank, except for those claims whose transfers are prohibited by law or which are related to the person of the creditor, or by which their nature oppose the transfer to another. Furthermore, if the debtor and the creditor stipulated in the agreement that the claims cannot be transferred, the assignment will have no effect on the debtor.
The simplest way to describe how factoring in North Macedonia works is the following way:
The subject of the redemption may be current or future receivables arising from invoices or other documents with a recorded calculation and data on the turnover of goods or services. The factoring agreement can be concluded for a certain period of time and will include all the monetary claims that the client has, and not just certain individual claims or transactions.
In the Law on Foreign Exchange Operations, the legislator also prescribed control, i.e. a reporting obligation to the National Bank of Republic of North Macedonia on credit transactions between residents and nonresidents (including factoring).
Having in mind everything that has been stated in this small article, there is a conclusion that in order to expand the factoring as a useful tool for financing in North Macedonia, there must be a solid legal framework and that should begin with adopting of a law on factoring or regulating the factoring in more precise manner. Moreover, the banks (who have the biggest purchasing ability) should be the drivers of the factoring market and the ones who contribute to expanding the factoring in the country.
The benefits of factoring for the creditors are many, such as: an opportunity for procurements with deferred payment and increase of the scope of the same; increased purchasing power without additional credit borrowing; a possibility for fast procurement of goods/services without unnecessary additional delay.
Factoring offers advantages for the factor as well. Namely, factoring gives a possibility for early payment of suppliers; an opportunity for protection from 'bad' debts, fast financing and opportunity for improved liquidity, sales and growth, opportunity to separate collection from sales activities and compared to traditional lending factoring provides a high level of continuous funding without additional procurement or collateral.