The Concept and Object of Factoring
Factoring is a transaction that involves the transfer of accounts receivable arising from an underlying contract and the registration of that transaction in the factoring register. As a result of the registration, the ownership of the claim arising from the accounts receivable passes to the respective factor. The essence of the transaction therefore rests on two interconnected elements — the transfer of the receivable to the factor and its entry in the factoring register; without registration, ownership of the claim does not pass.
Accounts receivable means any existing short-term unconditional right to claim payment of a sum of money arising from the supply of goods or the provision of services under an underlying contract — including the supply of a product or service related to intellectual property — in whole or in part. Rights to payment arising from a cheque, a promissory note, a security, a letter of credit or a deposit account are excluded from this definition. The term short-term means that the payment period of the receivable does not exceed 1 year from its origination. It is also important that, for the purposes of the law, the provision of services does not cover employment relationships, so claims related to wages remain outside the scope of factoring.
The object of factoring may only be the transfer of accounts receivable. It is impermissible for the object of factoring to be the transfer of accounts receivable arising from the supply of goods or provision of services for personal or household needs, except where trading in goods or the provision of services forms part of the entrepreneurial activity of the assignor.
For the purposes of factoring, the document confirming the existence of a claim against the debtor is a tax invoice issued in electronic form. Where, in cases determined by Georgian legislation, a tax invoice is not issued, an invoice serves as the confirming document. The identification of an invoice must be simple: it must bear a unique identification code assigned by the issuer of the invoice.