Factoring is becoming an increasingly popular financing tool for companies in New Zealand looking to improve their liquidity and reduce the waiting period for payment from customers. However, before deciding to use factoring, entrepreneurs and companies need to have a good understanding of the legal and regulatory aspects of this financial instrument. In this article, we will look at the basics of factoring in New Zealand and how it relates to law and regulation.
What is factoring?
Factoring is a financial transaction in which a company sells its outstanding invoices (accounts receivable) to a factoring company (the factor) at a discount. The factor provides term financing to the company by paying it a certain percentage of the total receivables. The factor then collects the money itself from the company’s debtors, thus giving the company instant access to money.
Legal aspects of factoring in New Zealand
Factoring legislation: Factoring in New Zealand is governed by various laws and acts. The lack of specialized factoring legislation makes it necessary to carefully research the applicable law and comply with all applicable rules and regulations.
Contracts and documentation: Drawing up contracts between the company and the factoring company is an integral part of the factoring transaction. Legally correct and complete contracts help avoid misunderstandings and disputes between the parties.
Data Protection: Factoring involves the exchange of sensitive information between the company, the factor and the debtors. Therefore, compliance with data protection laws is mandatory to protect the rights and interests of all parties involved.
Regulatory aspects of factoring in New Zealand
Factoring company licensing: Factoring companies must meet the requirements set by the regulators and obtain the appropriate license.
Financial Reporting: Factoring companies must comply with the rules of reporting and transparency of their activities to the regulatory authorities.
Protection of clients’ and debtors’ rights: Regulators ensure that factoring companies respect the rights and interests of clients and debtors to prevent abuse.
Factoring is a powerful tool to improve the financial situation of companies in New Zealand. However, legal and regulatory aspects must be carefully considered in order to successfully utilize this financial tool. Compliance with laws and regulations will help ensure that factoring transactions are transparent, responsible and sustainable, which will ultimately benefit both companies and factoring companies in New Zealand.