JRF International Factoring

The U.S. State Department has advised the Commercial Finance Association that it is preparing to submit the United Nations Convention on the Assignment of Receivables in International Trade to the United States Senate for ratification. 

Adopted by the UN General Assembly on 12 December 2001, the main objective of the Convention is to promote the movement of goods and services across national borders by facilitating increased access to lower-cost credit. In order to achieve this objective, the Convention  removes legal obstacles to certain international financing practices, including  asset-based lending and factoring. 

The Convention addresses many of the key legal impediments confronting asset-based lenders and factors that seek to finance cross-border receivables, increasing transparency and predictability, and thereby reducing risk and cost.  Among other things, the Convention:

Recognizes assignments of future receivables, bulk assignments of receivables and assignments of partial or undivided interests in receivables, and eliminates the need to update documents as new receivables are generated or to provide detailed descriptions of assigned receivables.

Overrides anti-assignment clauses in sales contracts.

Establishes clear conflict-of-laws rules for determining priority of assignments.

Safeguards the rights of account debtors, while prescribing rules for payment notices to, and setoffs by, account debtors. < >Offers alternative priority rules, including one based on a public notice filing system.The Convention only becomes effective after adoption by five countries.  To date, only Liberia has adopted it. There is strong consensus among supporters of the Convention that many countries are waiting for the U.S. to adopt the treaty before they follow suit. The CFA played a key advisory role in the six-year drafting process of the Convention and the U.S. State Department has called on the CFA to use its expertise in commercial finance to educate key members of the Senate and their staff, select members of the House of Representatives and executive branch officials about the benefits adoption of the Convention will bring to U.S. businesses. As the Convention is adopted by an increasing number of countries, cross-border receivables financing will become significantly easier and less costly to obtain.  This will make additional credit available to U.S. companies, enabling them to compete more effectively in the global marketplace.  It will also provide new lending opportunities for U.S. lenders and factors.

CFA's Advocacy Committee, working closely with CFA Co-General Counsel and staff are in the process of creating an education program to help legislators and their staff learn more about the Convention and receivables financing.