A Study On The Effect Of Types Of Accounts Receivable On The Validity Of Factoring Contracts

Although China’s factoring business started late,since 2012 when the Ministry of Commerce launched the first batch of commercial factoring pilot work,factoring business has been developing rapidly in China,and China has led the world in factoring business for five consecutive years until 2021.The rapid development of factoring business is not only due to the broad market environment in China,but also the national policy encourages the development of supply chain economy and supply chain finance,and the regulators continuously issue policies and regulations related to the development of factoring business,which provides a good policy environment for the sustainable and healthy development of factoring business in China.However,the provisions of the Civil Code on factoring contracts are relatively simple,and many of them,although provided for,are not detailed and perfect,and need further discussion and interpretation.This paper starts from analyzing the structure and nature of factoring contract and the recognition of accounts receivable,further discusses the relationship between accounts receivable and factoring contract,the effect on the validity of factoring contract in different states such as the existence of defects in accounts receivable,and finally puts forward certain operational suggestions for the prevention of risks in factoring contract in practice.The article will be divided into 4partsFirst of all,we analyze the concept and classification of factoring contracts and examine the elements of factoring contracts.It is suggested that the definition of factoring contract should be broad,and the core of "assignment of receivables" should be grasped when interpreting the definition of factoring;the types of factoring contract are introduced by the classification standard of the Civil Code.Then discuss the nature of factoring contracts.There are "indirect payment theory," the "guaranteed assignment of receivables theory," the "assignment of receivables theory," and the"factoring with recourse theory.The paper focuses on the "indirect payment","claim assignment guarantee","claim assignment" and "claim assignment with recourse".This paper argues that the interpretation of factoring with recourse as "assignment of claims with recourse" can better explain the legal characterization of assignment of accounts receivable as an assignment of claims,and also points out the characteristics of non-single claim in factoring transactions.The assignment of accounts receivable serves as both a payment guarantee and a direct source of repayment for the factor.When the factor fails to make payment to the debtor of the receivable,it has the right to request the creditor of the receivable to assume the responsibility of repayment according to the recourse clause.The second part is to analyze and define the "eligibility" of accounts receivable for factoring contracts.Firstly,the concept of accounts receivable is analyzed,and accounts receivable in the legal context should be defined as "a claim with the content of payment of money based on a contract".Then,the following section describes the classification of accounts receivable in accordance with the chapter on factoring contracts of the Civil Code,and describes the existing accounts receivable and the future accounts receivable separately.Among the existing receivables,the article considers that the "existing receivables claims" as the object of factoring contracts should meet the characteristics of general claims assignment,which require the specificity and assignment of claims,and discusses two typical types of existing receivables separately.In the case of future receivables,three aspects are introduced and analyzed,namely,the overview of the legislation,the explanation of the concept and the identification of future receivables.In the content concept,future receivables can be interpreted as future claims;while in the identification of future receivables,the key to identify narrow absolute future receivables claims is whether the debt relationship is established or not,and the identification of broad absolute future receivables claims is required to identify good defenses and defenses,because this is the opposite judgment perspective to identify broad absolute future receivables claims.The third part specifically analyzes the impact of different types of receivables on the validity of factoring contracts.Based on the classification of different receivables mentioned in the chapter of Factoring Contracts and the chapter of Changes and Assignment of Contracts of the Civil Code,the analysis focuses on the impact of: receivables prohibited from assignment,receivables that will have,fictitious receivables,receivables with changes in transactions,terminated receivables,and receivables where the debtor has the right of defense and set-off on the legal validity of factoring contracts.Among the receivables with prohibited assignment,they are subdivided into three types: according to the nature of the claim,according to the agreement of the parties,and according to the law,which cannot be assigned,and analyzed one by one.In the case of accounts receivable that will be assigned,the legal effect of the assignment of the claim is analyzed from the overview of judicial practice and the legal effect of the assignment of the claim,and it is considered more reasonable to adopt the "differentiated effect theory" for the effective point of the assignment of the claim of accounts receivable that will be assigned.In the case of fictitious receivables,we analyze the effect of fictitious claims of creditors and debtors,unilateral fictitious claims of creditors and joint fictitious claims of factors,creditors and debtors from the definition of fictitious receivables.In the case of accounts receivable that are changed or terminated,the factors to be considered and analyzed are: the point of change,whether the change is justified or not,and whether it is unfavorable to the factor.In the case of receivables in which the debtor has the right of defense and the right of set-off,the effects on the validity of factoring contracts are discussed in the cases in which the debtor has the right of defense and the debtor has the right of set-off,respectively.Part four proposes targeted preventive measures for the risks encountered in factoring business from the factor’s perspective.For the judgment of the transferability of accounts receivable,it is more appropriate to adopt a dynamic system approach,abandoning the all-or-nothing constitutive element judgment and instead focusing on the evaluation of the combination of legal elements and impact size to judge the transferability of future accounts receivable claims.The review of the real receivables should be judged by the meaningfulness of the parties,the price of the assignment of the receivables and the factor’s ability to manage and control the receivables.In the case of fictitious accounts receivable,the factor’s duty of care is clearly defined,and the factor’s "knowledge" is defined.In order to prevent the risks arising from the prohibition of assigning accounts receivable to factoring contracts,it is recommended that the factor preferably choose the factoring form with recourse,exercise the right to notify the debtor in a timely manner after signing the factoring contract or specify the underlying transaction content involved in the factoring contract when factoring with the creditor,and design a default clause in the factoring contract for the determination of the underlying content.