Thursday, August 8 2024 13:23

ArmInfo. In order to provide access to finance for small and medium-sized businesses in Armenia, they want to use the factoring tool. The decision on this was made at the meeting of the RA government on August 8.

As noted in the rationale for the draft decision, the use of this tool is currently associated with a number of problems.

Discussions with banks and business representatives involved in the public procurement process show that there are some obstacles, the solution of which can significantly increase the use of factoring. The importance of using this tool was also emphasized in the USAID-developed program "Improving the Business Environment in Armenia. Involvement of Small and Medium Businesses in Public Procurement."

The possibility of concluding a financing agreement (factoring) in exchange for the assignment of a monetary claim arising from a purchase and sale agreement is provided for by the legislation of a number of US states, the French Republic, the Russian Federation and the Republic of Kazakhstan. As a person with the right of claim on the basis of a purchase and sale agreement, a party to the agreement has the right to conclude a financing agreement (factoring) in exchange for the assignment of a monetary claim.  However, discussions with financial service providers and financial institutions of the RA revealed that there are a number of technical problems that do not allow the full use of the capabilities of this tool. In particular, this concerns the timing of filing a notification and the addressee, as well as the necessary rules for making a payment directly to the financial agent based on such a notification. In addition, the lack of structures for obtaining information makes it difficult for financial institutions to correctly assess credit risks and is another obstacle to the use of factoring. Based on the above, the purpose of the package of projects is to create conditions for the assignment of a monetary claim arising from a purchase agreement of the RA through financing agreements (factoring) in order to create financing opportunities on the most favorable terms for the purchase participants.

The draft, in particular, proposes that after signing the purchase and sale agreement, the selected participant has the right to assign the monetary claim arising from this agreement in exchange for the assignment of the claim. In the event of concluding such an agreement, the financial agent is obliged to notify the client in writing within two business days from the date of assignment of the claim based on the factoring agreement through the Mulberry electronic document management system. The text of the notification must indicate that the financial agent agrees with the accounting rules. The financial agent has the right to request and receive from the client or the RA Ministry of Finance a purchase and sale agreement (if any), which is the basis for the claim that is the subject of the factoring agreement, including information on its execution, except for cases established by the legislation of the Republic of Armenia. Payment is made to the financial agent upon receipt of notification of the conclusion of the factoring agreement. At the same time, in order to ensure compliance of the software, it is proposed to stipulate that the decision comes into force six months after its official publication and its effect does not extend to the procurement processes that have begun and have not yet been completed. It is expected that with the adoption of the draft law, opportunities will be created for financing procurement participants through financing agreements (factoring) in exchange for the assignment of a monetary claim.