Bank factoring is a form of business financing involving the assignment of a monetary claim, where the factor is a bank. The legal basis is provided by Chapter 73 of the Civil Code of Ukraine (Articles 1077–1086), which regulates factoring agreements as a form of financing through the assignment of a monetary claim, whilst the ability of banks to provide this service is derived from the Law of Ukraine ‘On Banks and Banking Activities’. The process is simple: the supplier ships the goods on deferred payment terms, assigns the right to claim against the buyer (receivables) to the bank, and immediately receives financing from the bank without having to wait for the buyer to settle the debt. This bridges cash flow gaps and provides working capital without the need for a traditional secured loan.
The advantage of bank factoring lies in its reliability and scale: the bank already holds a licence for banking operations, so it does not require a separate licence as a financial company; it operates with higher credit limits, offers a range of ancillary services and ensures a higher level of data protection. At the same time, a bank’s factoring agreement is usually more complex and has stricter terms than those of non-bank factoring providers: it sets out in detail the fees, the right of recourse, the client’s obligations regarding the quality of receivables, and the notification of debtors. Therefore, before signing, it is worth having a lawyer review the agreement.
We provide support for bank factoring on behalf of the client: we analyse the terms of the agreement, assess the risks of recourse and hidden fees, agree the wording with the bank, and ensure the correct formalisation of the assignment of claims and notification of debtors.
+38 095 554-54-24 — advice on bank factoring.
How bank factoring works
The classic factoring process consists of several steps:
- the supplier (client) delivers goods or provides a service on deferred payment terms;
- the client assigns the right to the monetary claim against the buyer to the bank;
- the bank pays the client financing (an advance) — the majority of the supply amount;
- the buyer (debtor) pays the bank within the specified timeframe;
- the bank transfers the balance to the client, less commission and financing fees.
By law, a factoring agreement must be concluded exclusively in writing, and the actual cost of the financing, as well as who bears the risk of the debtor’s non-payment, depends on the precision of its terms.
Types of factoring and why this is important for the contract
The terms of the contract depend significantly on the type of factoring:
- With recourse and without recourse — the key difference. In recourse factoring, the risk of non-payment by the debtor remains with the client: if the buyer fails to pay, the bank will reclaim the funds. In non-recourse factoring, the bank assumes this risk. The terms of such agreements are fundamentally different.
- Open and closed — whether the debtor is notified of the assignment of the claim.
- Domestic and international — depending on whether the parties are located in different countries.
It is precisely the issue of recourse that gives rise to the most disputes. We therefore examine factoring with recourse separately — its terms require particular attention from the client.
When is a solicitor needed, and when is it not?
If you have entered into a standard factoring agreement with a bank for a small amount, understand the terms and trust the counterparties — legal support may not be essential. But when the sums involved are substantial, the agreement includes recourse, the fees are unclear, or it involves international factoring — engaging a lawyer pays off. Banks draft contracts to suit their own interests, and clients often sign up to unfavourable terms simply because they haven’t spotted them. We review the contract from the perspective of your risks: what you’re actually paying for, when the right of recourse applies, what happens if the debtor fails to pay, and how to protect yourself. Before concluding the agreement, it is also useful to carry out legal due diligence on the debtor counterparty.
How we support bank factoring
- we analyse the factoring agreement and identify risks relating to recourse, commissions and penalties;
- we assess the quality of the assigned receivables;
- we agree the wording with the bank in the client’s favour;
- ensure the correct formalisation of the assignment of claims and notification of debtors;
- support the performance of the agreement and the resolution of disputes with the bank or the debtor;
- advise on the tax and accounting implications of the transaction.
The risks a business faces without legal support
The first risk is signing an agreement with recourse without realising that the risk of the debtor’s non-payment remains with you. The second is failing to spot hidden commissions and financing fees, which could make factoring more expensive than a loan. The third is to incorrectly formalise the assignment of a claim or fail to notify the debtor, and subsequently face a dispute over the validity of the assignment. The fourth is to assign a ‘problematic’ receivable and receive a demand from the bank for repayment. Each of these risks can be mitigated by analysing the contract before signing.
Cost of services (bank factoring)
| Service | Price |
|---|---|
| Factoring consultation | from 1,500 UAH |
| Legal analysis of a factoring agreement with a report | from 5,000 UAH |
| Support in concluding / negotiating an agreement with the bank | from 5,000 UAH |
| Legal representation in disputes arising from a factoring agreement | from 10,000 UAH |
| Comprehensive ‘turnkey’ support | from 30,000 UAH |
The cost depends on the complexity of the agreement and the transaction amount. Please note: the new Law of Ukraine ‘On Factoring’ No. 4466-IX has been adopted; it will come into force during 2026 and updates the regulations, so we verify the current provisions on the date of the agreement. Related services — registration of a factoring company and support for financial companies — are handled by the same practice.
Questions and Answers (bank factoring)
How does bank factoring differ from a loan?
Factoring is financing through the assignment of receivables, rather than a secured loan. You receive payment for a delivery that has already been made, without having to wait for payment from the buyer, and usually without traditional collateral.
Does a bank need a separate licence for factoring?
No. A bank provides factoring under its banking licence, whereas a non-bank factor requires a separate financial company licence from the NBU.
What is recourse and non-recourse factoring?
With recourse factoring, the risk of non-payment by the debtor remains with the client: the bank may demand repayment. With non-recourse factoring, this risk is borne by the bank. This is the main difference, which determines the price and security of the transaction.
What proportion of the supply amount does the bank pay immediately?
The size of the advance is determined by the contract and depends on the quality of the receivables and the type of factoring. The remainder is paid once the debtor has settled the debt, less the commission. Please refer to the specific contract for exact figures.
Is it necessary to notify the debtor of the assignment of the claim?
In the case of open factoring, yes; the debtor is notified and pays the bank. In the case of closed factoring, no. Correct notification is essential for the assignment to be valid.
Can overdue debts be assigned?
This depends on the bank’s terms and the type of factoring. Assigning ‘problem’ receivables under a recourse agreement is risky: the bank may demand repayment of the financing. Such details should be checked before signing.
Is factoring beneficial for small businesses?
Yes, when there are cash flow gaps due to deferred payments. However, the benefits are ‘eaten up’ by fees, so it is worth calculating the agreement in advance to ensure that factoring does not end up being more expensive than a loan.
What should you do in the event of a dispute with a bank over a factoring agreement?
We analyse the agreement and the facts of the case, prepare a claim and, if necessary, a lawsuit. Many disputes relate specifically to fees and the application of recourse.
Does the new ‘Factoring Act’ affect existing contracts?
Act No. 4466-IX comes into force during 2026 and updates the regulations. For new agreements, we check the provisions against the date of conclusion; for existing contracts, we assess the transitional provisions.
How much do your services cost?
From 1,500 UAH per consultation. Contract analysis and support depend on the complexity and value of the transaction.
Contact a lawyer specialising in banking factoring at Svarog
Send us a draft factoring agreement — we will analyse it from the perspective of your risks, highlight any unfavourable terms and agree amendments with the bank before signing. If a dispute has already arisen, we will prepare a claim or a lawsuit. This area is handled by our legal support for financial companies practice.
Telephone: +38 095 554-54-24, +38 096 554-54-25 (Telegram, Viber, WhatsApp). Address: 7 Khoriva Street, Office 2, Kyiv (Podil). Opening hours: Mon–Fri, 9.00–18.00.