Factoring Activity: Central Bank Sets Seven Eligibility Conditions

The Bank of Algeria has officially published a regulation outlining the conditions and methods for factoring activity by banks and financial institutions. This new framework, detailed in Official Gazette No. 67, formally introduces factoring into the Algerian market, providing a defined structure for its implementation.

Under this regulation, factoring is described as an operation where an adherent transfers commercial receivables to a bank or financial institution through a written agreement. The institution then firmly pays the full amount of the transferred receivable, bearing the risk of non-repayment, in exchange for remuneration. To be eligible for factoring operations, receivables must meet seven specific criteria. These include being certain, liquid, and determined in their amount without being subject to dispute from the debtor. Furthermore, the payment due date must be less than six months from the invoicing date, and the receivables must not have been extinguished by payment, compensation, or other legal means. They must also be freely transferable, free from any legal, regulatory, or contractual transfer prohibitions, and not encumbered by any prior assignment, pledge, or other security that could affect the factor's rights.

Additional conditions specify that receivables cannot involve a debtor who is in a situation of payment cessation, judicial recovery, liquidation, or similar circumstances. Moreover, the receivables must not have been subject to a payment extension for any part of their amount at the transfer date. The Bank of Algeria's regulation also explicitly prohibits any factoring contract that aims to finance receivables already financed under a different factoring agreement, ensuring clear and distinct financial operations within the market.