Factoring -also known as assignment of the transfer of invoices or discount of invoices– is one of the most widely used financial tools in Costa Rica. This type of financing has been practiced for many years in the country and it´s frequently used by companies that need to improve their liquidity promptly and to continue their company with normality.

What is the transfer of invoices or factoring?

Factoring in Costa Rica consist in anticipating the payment of an receivable account, which is transferred to a private person or a legal corporation, and this, in turn, is responsible for facilitating the money of the due, as well as collecting the debt .

The concept of factoring becomes very broad and today can be done using different means: bills, bills of exchange, promissory notes, contracts, or any other document that back up a receivable account of a client.

Despite being a financial practice widely used in the country, there are not specific laws governing factoring; however, the Civil Code of Costa Rica regulates the assignment of receivables and several articles apply to the practice of factoring.

Regulations within the Civil Code that apply to the transfer of invoices or factoring:

1. Assignor-Assignee relationship:

Assignor: grant the rights by means of a contract of assignment. Is the temporary head by the rules established in the contract.

Assignee : it is the one who has the temporary powers of holder in the contract of assignment; it is determined by the assignor.

Article 1104 of the Civil Code establishes that: the onwership of a credit passes to the assignee in its relations with the assignor, for the sole effect of the assignment; but regarding the debtor , the assignment is only effective by the notification made to him of the transfer; and with respect to third parties, will only be effective from the certain date of the assignment, unless the credit is of those that the law permits to be due to the bearer of the title, or that the title is transmitted by simple endorsement.

• Article 1113 the assignor guarantees, without need of a special clause, the existence and legitimacy of the credit, as well as his right of ownership at the time of the transfer. This guarantee extends to the accessories, referred to as dependents of the credit and as included in the assignment..
• Article 1114 the assignor will not be responsible for solvency unless he has been obliged to do so and only by the amount received in payment of assignment.

2. Assignor- Debtor relationship:

Debtor: is the person, to whom the debt is transferred, but without consequences of the debt.

• Article 1106 of the Civil Code: the debtor of a loan assigned is discharged for the payment made to the assignor before the notification or acceptance of the transfer.

In this aspect, it should be understood that the debtor assigned is not part of the loan assignment contract, as his position is observed before or after the notification. Prior to the notification, the relationship with the assignor remains and the assignment does not affect it, even before the notification can be discharged by paying the assignor.

3. Assignee-Debtor relationship:

Article 1111: the debtor may oppose to the assignee all real or personal exceptions that could have been made against the assignor and may assert them, even if he had not made any observation when the assignment was notified; even in the case of pure and simple acceptance, he may oppose any other exception outside the compensation, except inn repairing the damage caused to the assignee by the acceptance, according to the circumstances, constituting this a serious fault or recklessness on his part.

The notification consists in informing the debtor of the granting of the assignment the transfer of invoices. The purpose of the notification is to prevent any damage to the debtor from any payment t made to the assignor.

ERP Lawyers & Associates: legal advice in factoring

If your company requires legal advice to obtain or provide financing by factoring, ERP Lawyers & Associates offers an interdisciplinary team of attorneys with extensive experience in the transfer of invoices and bills assignment. Contact us to receive personalized legal advice:

• Contact form
• (506) 2520-1122
• eduardo@erplawyers.com