Bangladesh may adapt The General Rules for International Factoring (GRIF) and encourage Factors to join the global factors chain can guide and regulate the contract of factoring service to protect the interest of the factoring service recipients.

1. Published: 01:11 AM, 11 October 2020
https://dailyasianage.com/news/244038/general-rules-for-international-factoring
General Rules for International Factoring
M S Siddiqui
Factoring is a global financial product for trade financing for both domestic and international
trade. It is an effective mean of short-term financing for easy access to working capital. Factoring
is offered under an agreement between the Factor (factoring company) and seller (Factoree,
supplier). Under the agreement, the seller sells or assigns its accounts receivable to the factoring
company at a discount.
This mean the seller get the payment at an early date from the factor and in certain categories
factoring, the factor guarantees the collection of payment at own risk. Bangladesh has domestic
Factoring rule issued by Bangladesh Bank (BB) and some Bank and non-bank financial institutes
are offering factoring financing in a limited scale. BB has recently issued a rule for non-recourse
international factoring to safeguard the payment against exports.
Domestic factoring is operating with a procedural framework determined by local laws and
regulations. International factoring serving international trade using the two-factor system
requires a set of rules and procedures which govern the activities and basis for cooperation
between two factors conducting the transaction in two jurisdictions. There is hardly any uniform
legal system in different countries.
Parties should agree on rule of business, right and obligation should be agreed upon between
the parties. Such rules may be established bilaterally between those two parties, this is very
cumbersome, hence the great benefit of having an agreed set of rules which can be applied
rapidly among a large number of factors in many countries.
The Factor Chain International (FCI), the factoring network was established in the Netherlands in
1968, with its headquarters in Amsterdam, having more than 100 members. The purpose of the
FCI is to provide its members with standard criteria, procedures, law, and technological
consulting relating to international factoring.
The FCI Code of International Factoring Customs, developed by the FCI Legal Committee,
became the world's most widely recognized legal framework for international factoring and
served as the prime example for the final text of the UNIDROIT Convention of International
Factoring. FCI regularly updated code in July 2002, renamed it the General Rules for
International Factoring (GRIF). It has provided a new standard for correspondent factoring
relationships and probably more than 80% of the world cross-border factoring volumes are
governed by those rules.
If that company engages in import factoring, or in export factoring where direct factoring is
appropriate, the FCI Rules are not needed as such Rules govern the two-factor system.
Factoring company will likely consider joining FCI. Taking FCI as an example will illustrate how
the international factoring rules are applied.
The factoring companies sign an 'Inter-factor agreement' for joining FCI and commit to governed
by three sets of rules and procedures: (1) The General Rules for International Factoring (GRIF),
(2) The edifactoring.com Rules, (3) The Rules of Arbitration. These rules constitute the basic
framework governing co-operation between members and these rules defined the rights and
obligations of the parties to transactions under the two factor system.

2. The General Rules for International Factoring (GRIF) is a uniform set of rules and regulations
developed by FCI and governing transactions between FCI members. The GRIF, together with
the Inter-Factor Agreement, is in effect a service and guarantee contract between the Export
Factor and the Import Factor.
The GRIF is a comprehensive set of rules which covers the following areas: (1) Factoring
contracts and receivables, (2) Parties taking part in two-factor international factoring, (3)
Receivables included, (4) Common language, (5) Time limits, (6) Writing, (7) Deviating
agreements, (8) Numbering system, (9) Commission/ Remuneration, (10) Settlement of
Disagreements between Export Factor and Import Factor, (11) Good faith and mutual assistance
Assignment, (12) Validity of assignment, (13) Validity of receivables, (14) Reassignment of
receivables, (15) Definition of Credit Risk, (16) Approvals and requests for approvals, (17)
Reduction or cancellation, (18) Obligation of Export Factor to assign, (19) Rights of the Import
Factor Collection, (20) Unapproved receivables, (21) Transfer of Payments, (22) Payment under
guarantee, (23) Prohibitions against assignments, (24) Late payments, (25) Disputes, (26)
Representations and Warranties, (27) Communication and electronic data interchange (EDI),
(28) Accounts and reports, (29) Indemnification, (30) Breaches of provisions of these Rules, etc.
The Inter-Factor Agreement is the basis of the contractual arrangements between factors.It binds
the signers to the three sets of FCI Rules: the GRIF, the edifactoring.com Rules and the
Arbitration Rules. Special conditions affecting only certain countries can be incorporated in the
bilateral Inter-Factor Agreements.
The edifactoring.com Rules govern how members communicate with each other, the obligations
of the respective factors, and matters of security, confidentiality and storage of records. It uses to
facilitate transactions between the respective factors are validly concluded by the exchange of
edifactoring.com messages without any written documentation.
The Export Factor, located in the country of export received the assignment of accounts
receivable from its customer (the exporter), assigns those same accounts receivable to the
Import Factor, located in importing country to collect from the Buyer. This assignment technically
taking place by means of an edifactoring.com message. The Import Factor and Export Factor
only need to sign one Inter-Factor Agreement to cover transactions of many sellers.
The Export Factor, in assigning the accounts receivable to the Import Factor who bears the credit
risk, the Export Factor is able to offer credit risk cover and payment at a pre-determined date to a
Seller. These mechanisms permit an Export Factor to offer cross- border factoring to exporters in
his country, thereby encouraging international trade.
The FCI Rules of Arbitration provide for a method of resolving disputes between FCI members
through an FCI arbitration process, which involves appointing arbitrators whose decisions are
binding.Factoring should be regulated by a set of rule and regulation under legal system of a
country. Where these laws are clear and well-tested as to enforceability, factoring has developed
without any specific legal or regulatory framework for factoring as such.
The only proposed rule of Factoring drafted by BB is mostly focusing on recovery of export
proceeds but not full factoring services such as export trade finance. It does not have details of
other issue of probable disputes and dispute resolution methods. It is not possible to prepare all
documents overnight. Moreover, global financial system also modifies due to demand of the
market.
There are some international conventions which define factoring and the relationships between
parties in international factoring. The best known is UNIDROIT convention of 1988. GRIF rule
has been prepared in line with the convention. Bangladesh should consider ratifying the
convention to facilitate the factoring services.

3. In a country like Bangladesh, where factoring is a new concept, or where there are gaps or
difficulties with in the legal framework for assignment of receivables, FCI rule is desirable to put
in place a body of law and/or regulation in order to make factoring a workable activity in practice.
Bangladesh may adapt The General Rules for International Factoring (GRIF) and encourage
Factors to join the global factors chain can guide and regulate the contract of factoring service to
protect the interest of the factoring service recipients.
The writer is a legal economist.
E-mail: mssiddiqui2035@gmail.com