What is Factoring?

A Strategic Cash Management Tool for Businesses

Factoring is one of the most effective financing solutions offered by modern commerce. Especially for businesses struggling to manage cash flow, factoring enables access to liquidity by transferring receivables to a professional financial institution. In this system, companies' post-invoiced and yet-to-be-collected receivables are purchased or managed by a factoring company. This allows businesses to convert their receivables into cash without waiting for their due date, ensuring uninterrupted operations.

Factoring is not only a financing tool. It also offers comprehensive services such as risk management, collection organization, and customer analysis, thereby professionalizing companies’ financial processes. For SMEs in particular, factoring provides an alternative and more accessible source of cash compared to bank loans. This system operates without the need for bank guarantees, mortgages, or lengthy procedures, accelerating trade while minimizing receivable risks.

Thanks to advancing digital infrastructure, factoring transactions can now be carried out electronically in harmony with integrated accounting systems, enabling companies to save time and reduce operational costs. Factoring also stands out as a secure payment and financing tool not only in domestic trade but also in international trade.

Key Parties Involved in the Factoring System

A Three-Pillar Relationship of Trust

Factoring transactions fundamentally operate between three different parties. This triadic structure ensures the process functions soundly from both a legal and financial perspective:

Seller (Supplier / Business Providing Goods or Services):
The party that performs sales on credit, issues invoices, and holds the right to receivables. By assigning its receivables to a factoring company, the seller obtains early financing and improves cash flow.

Buyer (Debtor / Customer):
The party that receives goods or services from the seller on credit and is responsible for paying the related invoice. In the factoring process, the ultimate payment obligation lies with the buyer. Payment is usually made directly to the factoring company, and the buyer is typically informed of this arrangement.

Factoring Company:
This party provides financing, manages receivables, and, in some cases, assumes collection risk. Factoring companies not only offer financing but also value-added services such as tracking receivable collections, analyzing customer creditworthiness, and insuring receivable risks.

Thanks to this three-party structure, the factoring system meets the seller's liquidity needs, regulates the buyer’s payments, and minimizes market risks. Especially for businesses with growth objectives facing financial bottlenecks due to payment terms, this model serves as a key to sustainable trade.

Legal and Regulatory Framework of Factoring

A Financial Service Under Legal Protection

In Turkey, factoring services are provided under strict legal regulation and supervision. This ensures that receivables are securely transferred and that businesses operate with financial transparency. Companies wishing to offer factoring services must comply with the legal framework set by the Banking Regulation and Supervision Agency (BDDK).

Key Regulations:

Official Gazette No. 26315 (October 10, 2006):
The "Regulation on the Establishment and Operating Principles of Financial Leasing, Factoring and Financing Companies" outlines in detail the establishment criteria, licensing processes, scope of activities, and supervisory principles for factoring companies.

Law No. 6361 (2012):
The "Financial Leasing, Factoring and Financing Companies Law" redefined the establishment and operational areas of companies operating in the sector, strengthening consumer rights and supervisory mechanisms. This law introduced regular reporting obligations similar to those of credit institutions and made operational licenses subject to BDDK approval.

BDDK Supervision:
The financial structures, customer contracts, assignment transactions, and collection methods of factoring companies are regularly audited by the BRSA. Ethical standards and customer rights are also monitored in the sector. Thanks to this supervisory mechanism, both companies assigning receivables and buyers can conduct transactions with financial security.

Assignment Process and Legal Validity:
The assignment process, which forms the foundation of factoring transactions, is defined in the Turkish Code of Obligations. Assigned receivables must be documented with legally valid invoices. Assignments can be made without the buyer’s approval; however, in most cases, the buyer is informed. This ensures transaction transparency and legal validity.