An organisation representing international factoring companies has been in Vietnam this month, pressing the case for businesses to use factoring rather than letters of credit (L/Cs).

The conference is a response by Factors Chain International (FCI) to legislative changes that in 2004 made factoring possible for Vietnamese businesses for the first time - but at least one international law firm believes several constraints restrict factoring operations in Vietnam.

Introducing benefits

Around 200 representatives of export businesses in the greater Ho Chi Min city area attended the conference staged by FCI aimed at introducing Vietnamese exporters to factoring.

The conference argued that factoring is an effective tool for global inter-company payments and obviates the need for L/Cs or bills of exchange.

Limitations

But according to an international law firm providing business advice throughout the world, factoring in Vietnam is limited by several constraints.

"There are a number of restrictions and exclusions," Freshfields Bruckhaus Deringer, say in a statement.

"Notably, payment factoring may not be carried out for receivables arising from a sale and purchase transaction whose payment period exceeds 180 days," it adds.

Capital restrictions

The law firm also points out that a credit institution in Vietnam is not permitted to provide payment factoring to a customer in an amount exceeding 15 per cent of its capital, and total factoring amounts for all customers must not exceed its total capital.

The State Bank of Vietnam authorised factoring in the country in September 2004.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.