Small- and medium sized enterprises (SME) have limited access to financing options. One of the limitations for financing SME’s is the so-called factoring ban that is recorded in Dutch law. This ban enables buyers to prohibit their suppliers from factoring invoices resulting from a contractual relationship.
After strong signals from the market, the Dutch Minister for Legal Protection announced in March of 2018 that the factoring prohibition will be removed. After several months, the preliminary amendment law is now available for internet consultation.
In our investigation for the added value of sharing invoice status data, the pledging ban frequently came to discussion. The imminent removal of the ban creates opportunities and risks for the market. This input was included in the functional design of UNBIAS and has turned out to be the missing link to activate all roles involved with factoring. This blog post summarises the results of our investigation in the removal of the pledging ban.
The amendment of the law is seemingly not very significant. Article 83, book 3 of the Dutch Civil Code determines the limitations for transferring claimable rights, including factoring. The preliminary amendment of the law includes an exemption for money receivables by name, including invoices. By including this small bit of text, the factoring ban is removed.
Furthermore, Article 94 is complemented by a part that determines that pledging needs to be notified to the buyer in writing. This is a supplement to the already existing obligation to inform the buyer if an invoice has been factored. This notification is also valid for silent factorign and serves to prevent disputes around invoice settlement.
Impact of the amendment
Even though the preliminary amendment is relatively small, the impact can be substantial. The Dutch banking association (NVB) and the Factoring and Asset Based Financing Association Netherlands (FAAN) calculated that removal of the factoring ban can lead to additional credit space of nearly €1 billion.
If the preliminary amendment is accepted, it will become impossible to by contract exclude invoices from factoring. Since there is a legitimate interest of the buyer for a single payment address for invoices, the seller needs to inform the buyer in writing of a factoring situation. This may be done electronically.
What does this mean for UNBIAS?
Suggested amendment increases the need for UNBIAS. The expectation is that the number of factored invoices will increase after removal of the pledging ban. With this, the need for transparency increases. UNBIAS makes it easier for the seller to settle invoices that have been factored. UNBIAS is therefore a welcome addition to the factoring landscape in the Netherlands.
Timeline for amendment of the law
The preliminary amendment of the law is available for internet consultation until August 22, 2018 on the website of overheid.nl. After this, the Ministry of Legal Protection will process the results after which it will be discussed by the Council of Ministers. There is no timeframe presented when the law will become effective.