Reform

CROATIAREGULATING FACTORING TRANSACTIONS

With assistance from the EBRD’s Legal Transition Programme (LTP), in July 2014 Croatia adopted a law on factoring, regulating for the first time this sector in which the Bank has started to invest.

In July 2012 the government of Croatia requested technical assistance from the Bank to help reform the factoring sector. In particular, the government aimed to develop a factoring law that would help unify market practices, improve the legal certainty of transactions, introduce regulatory oversight and enhance the legitimacy of the industry.

The ultimate goal was to facilitate access to finance for small and medium-sized enterprises (SMEs) in Croatia by assisting the development of the factoring industry.

Croatian SMEs are commonly required to provide trade credit to their large clients and to hold overdue accounts receivable on their balance sheets. This can create funding problems for such firms; they typically lack cash flow and may have difficulty accessing other sources of funds. Factoring is seen as a financial tool that can help minimise these liquidity problems, by providing working-capital financing that is ultimately based on the credit ranking of the large clients of SMEs.

The law creates a modern legal framework for undertaking factoring transactions. In addition, it offers a regulatory framework for the supervision of factoring companies by the Croatian Financial Services Supervisory Agency.

Under the LTP the EBRD also seeks to support the development of local and/or regional reverse-factoring programmes.