How Factoring Recourse and the Notice of Assignment Work

The right of recourse (rücu hakkı) in a factoring agreement refers to the factoring company’s power to reclaim from the selling client the amount of a receivable it has taken over but has been unable to collect from the debtor. The scope and the conditions of this right vary according to whether the agreement is set up as “with recourse” (rücu edilebilir, kabili rücu) or “without recourse” (gayri rücu), and it is an arrangement that frequently gives rise to disputes in practice. Which type of agreement has been concluded, whether the notice of assignment (temlik bildirimi) was made in due form, and whether the debtor’s defences (def’i) have been preserved directly determine the limits of the right of recourse. In this article we address the subject within the framework of current practice in the field of factoring law.

What Is a Factoring Agreement and What Is Its Legal Nature?

A factoring agreement is defined in article 38/1 of Law no. 6361 on Financial Leasing, Factoring and Financing Companies as an agreement under which receivables arising from the sale of goods or services and evidenced by an invoice are assigned to a factoring company, in return for which the client is provided with a collection, financing or guarantee service. The Law lays down that the agreement must be made in writing as a condition of its validity.

The factoring agreement is not separately regulated in the Turkish Code of Obligations (Türk Borçlar Kanunu, TBK); it is therefore regarded as an innominate (atypical) contract, and the gaps are filled by applying by analogy the TBK provisions on the assignment of receivables (m. 183-190) together with the general provisions. On the conclusion of the agreement the client assigns to the factoring company the receivable attached to the invoice it holds; in return part of the value is paid in advance, and the remaining part is settled once the debtor’s payment has been collected. In practice, companies with a large and regular turnover prefer this structure in order to speed up their cash flow. Structures in which the agreement is set up as a framework agreement, with each invoice brought within its scope as a separate assignment, are also widespread. Where the factoring relationship turns into a commercial law dispute between merchants, the pursuit of the uncollected receivable through enforcement proceedings (icra takibi) may also come onto the agenda.

The Functions Assumed by the Factoring Company

The Law accepts that the factoring company may assume one or more of the collection, account monitoring, financing and guarantee functions. The scope of the function provided directly affects whether a right of recourse arises; where the guarantee function has been assumed, the risk that the debtor will be unable to pay may pass to the factoring company, whereas where there is only a collection or financing function the risk generally remains with the client.

What Is the Difference Between Recourse and Non-Recourse Factoring?

In recourse factoring the risk that the debtor will fail to pay for any reason remains with the client, and the factoring company may reclaim from the client the amount it has been unable to collect. In non-recourse factoring, on the other hand, the risk of non-payment passes to the factoring company within the conditions laid down in the agreement; this does not, however, remove the client’s liabilities arising out of the commercial relationship.

Both structures are common in practice, and which one applies is understood from the text of the agreement the parties have signed. In recourse factoring, where the debtor falls into default, the factoring company may claim back from the client the amount it has paid over at the end of a certain period (generally once the waiting period agreed upon has run from the due date). In non-recourse (gayrikabilirücu) factoring, unless otherwise agreed in the contract, the risk that the debtor will be unable to pay because it has become insolvent belongs to the factoring company; such agreements generally carry a higher commission rate, because the risk has been transferred to the factoring company.

Exceptions to the Right of Recourse in Non-Recourse Factoring

Even where a non-recourse factoring agreement has been signed, there are situations in which the factoring company may have recourse against the client. Delivery of the goods or the service contrary to the contract, to the quality conditions or to the agreed quantity, the debtor’s justified refusal to pay on that ground, the invoice not being based on a genuine sale relationship, or the client giving the factoring company incorrect or incomplete information are the principal situations that give rise to a right of recourse. This distinction shows that non-recourse factoring assumes only the risk of “the debtor becoming insolvent” and does not assume the risk of disputes arising out of the commercial relationship.

What Are the Conditions for the Factoring Company to Exercise Its Right of Recourse?

For the factoring company to be able to exercise its right of recourse, the possibility of recourse must first be expressly provided for in the agreement, the debtor must have failed to pay on the due date, and the waiting or notification process laid down in the agreement must have been completed. A recourse demand is generally addressed to the client by written notice, and the client is asked to return the amount it has received. How the debtor’s rights and receivables held by third parties may be attached is dealt with in detail in our article on the attachment notice (haciz ihbarnamesi).

The procedure laid down in the agreement for the exercise of the right of recourse must be followed; some agreements also require the factoring company to have started its collection attempts against the debtor (such as a formal notice or enforcement proceedings) within a certain period. The client may object to the recourse demand by proving that the agreement was set up as non-recourse, or that the debtor’s failure to pay did not arise from the client’s own fault. In the event of a dispute, the full text of the agreement, the correspondence between the parties and the commercial documents relating to the invoice are important as evidence.

The Factoring Company Proceeding Against the Debtor

The factoring company may commence proceedings directly against the debtor before exercising its right of recourse, or together with doing so. Where the receivable is attached to a negotiable instrument (kambiyo senedi: a promissory note, a cheque, a bill of exchange), the rules of enforcement and bankruptcy law on the attachment procedure specific to negotiable instruments may be applied; where the receivable is an ordinary receivable, proceedings without a judgment are brought by way of the general attachment procedure. The enforcement cost calculator may be used for the anticipated cost of the proceedings. How this process works from the formal notice stage through to enforcement is explained in detail in our article on the collection of a commercial receivable.

How Is the Notice of Assignment Made to the Debtor and What Are Its Legal Consequences?

The notice of assignment is the communication to the debtor that the receivable has been assigned to the factoring company, and under TBK m. 188 it is of critical importance in ensuring that the debtor knows to whom it is to pay. A payment made to the former creditor (the client) before the notice reaches the debtor is deemed valid and discharges the debtor.

For this reason factoring companies generally bring the notice of assignment to the debtor by means of an annotation placed on the invoice, a separate notification, or a notice served through a notary. Making the notification in a provable form (such as a registered letter with return receipt, a notarial notice or electronic service) prevents later objections that “the debtor was not aware”. After the notification, payments the debtor makes extinguish the debt only where they are made to the factoring company; a payment made to the client does not discharge the debtor, and the debtor may face the risk of paying twice.

What Do the Debtor’s Defences and Objections Cover?

The debtor may raise against the factoring company as well the defences (def’i) available to it at the moment it learned of the assignment, such as set-off, the statute of limitations (zamanaşımı) or a defect in the goods; TBK m. 188/1 and m. 9/2 of Law no. 6361 secure this protection. This arrangement follows from the principle that an assignment must not worsen the debtor’s legal position.

For example, the debtor may raise against the factoring company as well that the goods were delivered defective, that part of the price had previously been set off, or that the receivable has become time-barred. Where the factoring company meets such defences, it may have recourse against the client for the amount it has been unable to collect, provided the agreement is of the recourse type. At this point the debtor’s defences and the factoring company’s right of recourse become intertwined; most disputes arise at the point where these two rights conflict.

Illustrative Example: The Right of Recourse in Practice

The following example is entirely fictitious and is not based on any actual client or file; it has been prepared purely by way of illustration in order to explain how the process works. A textile manufacturer assigns to a factoring company, under a recourse factoring agreement, an invoice of 500.000 TL issued to a buyer, and receives 80% of the value in advance. When the due date arrives the buyer is unable to pay because of financial difficulty. At the end of the 90-day waiting period laid down in the agreement, the factoring company has recourse against the manufacturer and claims back the amount it paid over; on returning that amount, the manufacturer may also take back from the factoring company the right to pursue the receivable in its own name.

In the same example, had the buyer’s reason for not paying been different, the outcome could also have been different: in a scenario in which the buyer proves that the fabric delivered did not match the quality agreed in the sample, the factoring company could still have had recourse against the manufacturer even if the agreement had been set up as non-recourse, because that situation arises not from the debtor becoming insolvent but from a dispute arising out of the commercial relationship. These two scenarios show that the recourse or non-recourse character of the agreement is not sufficient on its own, and that the reason for non-payment is also decisive in determining whether a right of recourse arises.

What Points Should Be Watched in a Factoring Agreement?

Before the agreement is signed, careful attention should be paid to how the recourse/non-recourse distinction, the waiting periods, the commission and interest rates, the procedure for the notice of assignment and the debtor’s defences are regulated in the agreement. Unclear or contradictory clauses lead to problems of interpretation in the event of a dispute.

The Course to Follow in the Event of a Dispute

In disputes arising from a factoring agreement, the provisions of the agreement are applied first, then the TBK provisions on the assignment of receivables and the general principles of the law of obligations. Where one of the parties is a commercial enterprise and the dispute is one between merchants, it may be necessary to go through mandatory mediation in commercial actions before an action is brought; the nature of the particular contractual relationship should be assessed separately at this point.

What Is the Difference Between Factoring and the Ordinary Assignment of a Receivable?

Factoring is a special form in which the assignment of a receivable (alacağın temliki) is structured as a commercial financing instrument; as in an ordinary assignment the receivable is transferred, but in addition to the factoring agreement a collection, financing or guarantee service is also provided. This difference is important in determining which provisions are to be applied.

Whereas in the ordinary assignment of a receivable only the transfer of the receivable is at issue between the parties, in a factoring relationship the factoring company generally undertakes to take over all of the client’s commercial receivables (or a particular part of them) on a regular basis, to provide financing in return and to monitor the debtor accounts. For this reason a factoring agreement is in the nature of a continuing framework agreement rather than a one-off assignment. This framework structure makes it necessary for the agreement or its annexes to state clearly which invoices fall within its scope, on which date they were assigned and for which invoices the right of recourse will operate; otherwise it may become difficult, in the event of a dispute, to prove which receivable was assigned and on what conditions.

How Does a Factoring Agreement Come to an End?

A factoring agreement comes to an end on the expiry of the agreed period, by the parties agreeing to terminate it, or on the occurrence of the grounds for termination for cause laid down in the agreement; termination does not extinguish the rights and obligations of the parties that have arisen up to that moment.

In fixed-term agreements either party may give notice of termination by observing the notice period laid down in the agreement. Situations such as a deterioration in the client’s financial position, incorrect or incomplete information being given to the factoring company, or the loss of the debtor’s ability to pay may be regulated in the agreement as grounds for termination for cause. Even where the agreement has come to an end, the regime of recourse and of defences continues to apply, unless otherwise agreed in the contract, to receivables assigned before the date of termination and not yet collected. It is therefore important that the termination provisions of the agreement are drafted clearly so as to cover the period after it ends as well.

The Limitation Period in Factoring

For receivables arising from a factoring agreement, the statute of limitations (zamanaşımı) is determined according to the nature of the underlying relationship on which the receivable is based, such as a contract of sale or a negotiable instrument; the general limitation provisions of the TBK apply to commercial sale receivables, while for receivables attached to a negotiable instrument the short limitation periods specific to negotiable instruments under the Turkish Commercial Code (Türk Ticaret Kanunu) apply. The period within which the factoring company may proceed both against the debtor and, by way of recourse, against the client must remain within these limitation periods.

The Place of the Factoring Commission and the Interest Elements in the Agreement

The cost of a factoring transaction generally consists of two items: the factoring commission (the service fee) and the interest running on the amount paid in advance. Setting out these two items separately and clearly in the agreement is important in order to prevent later allegations of “hidden interest” or “excessive commission”. The client being able to calculate clearly in advance the difference between the nominal value of the receivable it assigns and the net amount it receives is a requirement of transparency in the agreement. The differences between the interest applied in a factoring transaction and statutory interest and default interest may be examined in our article devoted to that subject.

Is There a Difference Between Domestic Factoring and Export Factoring?

In domestic factoring the creditor, the debtor and the factoring company all operate in the same country, whereas in export factoring the buyer is resident abroad and a two-sided system is generally set up with a correspondent factoring company in the importer’s country. This difference has important consequences for the applicable law, exchange rate risk and the operation of the collection process.

In export factoring the exporter assigns its receivable to a factoring company in its own country (the export factor); that company in turn assigns the receivable to a correspondent factoring company in the importer’s country (the import factor), which performs the collection and guarantee functions. This structure enables the exporter to operate more safely in international trade without having to assess on its own the payment capacity of a foreign debtor and the country risk. In transactions carried out in foreign currency, clearly determining in the agreement which party is to bear the exchange rate risk, and clearly agreeing in the agreement on the applicable law and on the judicial authority having jurisdiction in the event of a dispute, are matters to which particular attention should be paid in international factoring relationships. In domestic factoring, on the other hand, the relationship between the parties is shaped largely by the provisions of Law no. 6361 and the Turkish Code of Obligations, and it contains no foreign element.

The Factoring Company’s Pre-Contractual Assessment Process

Before the agreement is concluded, the factoring company assesses the financial position, commercial history and payment performance of both the client and the debtor; this assessment plays a part in determining both the commission rate and whether the agreement is to be set up as recourse or non-recourse. Where the debtor’s payment capacity is strong and its commercial history regular, the factoring company may more readily accept a non-recourse structure; where there is insufficient information about the debtor or the risk is seen as high, a recourse structure is preferred. The accuracy of the information the client provides to the factoring company is of great importance in this assessment process; giving incorrect or incomplete information may later constitute good cause for terminating the agreement or for extending the right of recourse.

What Will the Other Side Do?

In disputes over the right of recourse in factoring the factoring company too has a basis for its position; knowing that basis in advance makes the decision whether to object or to accept clearer.

The claim that a right of recourse has arisen because of a commercial dispute even though the agreement is non-recourse. The factoring company may argue that the debtor’s failure to pay arises not from insolvency but from defective delivery of the goods. This claim is assessed against the delivery record, the quality control records and, where there is one, the debtor’s written objection.

The claim that the notice of assignment was made in due form. This is met with the notarial record or the service document showing the date on which the notice reached the debtor; under TBK m. 188 a payment made before the notice arrives is valid.

The claim that the recourse demand was made within the period and in accordance with the procedure laid down in the agreement. This is assessed by comparing the position with the text of the agreement in order to see whether the waiting or notification period has in fact expired.

The claim that the client gave incorrect or incomplete information before the agreement was concluded. This is met by examining whether the documents and statements submitted when the agreement was concluded correspond to the truth.

Which basis comes to the fore varies according to the type of the agreement and the reason for non-payment; it is therefore important that delivery documents and correspondence are kept in order throughout the term of the agreement. To see in advance what assessment your file is likely to meet, you may get in touch.

Frequently Asked Questions

Must a factoring agreement always be in writing?
Yes; Law no. 6361 lays down that a factoring agreement must be made in written form as a condition of its validity.

What is the basic difference between recourse factoring and non-recourse factoring?
In recourse factoring the risk of the debtor’s non-payment remains with the client; in non-recourse factoring that risk passes to the factoring company within the limits laid down in the agreement.

In non-recourse factoring, can the factoring company never have recourse against the client?
It can. In disputes of a commercial nature, such as delivery of the goods in breach of the contract or an invoice not based on a genuine sale, a right of recourse may arise under non-recourse agreements as well.

What happens if the debtor pays the former creditor before the notice of assignment is made?
Under TBK m. 188 a payment made before the notice reaches the debtor is valid and discharges the debtor.

What defences may the debtor raise against the factoring company?
The debtor may raise against the factoring company as well all the defences available to it at the moment it learned of the assignment, such as set-off, defect or the statute of limitations.

How may the factoring company commence proceedings against the debtor?
If the receivable is attached to a negotiable instrument, the attachment procedure specific to negotiable instruments may be used; if it is an ordinary receivable, proceedings without a judgment may be brought by way of the general attachment procedure; the choice of route varies according to the particular circumstances.

What becomes of previously assigned receivables if the factoring agreement is terminated?
Even where the agreement has come to an end, the regime of recourse and of defences continues to apply, unless otherwise agreed in the contract, to receivables assigned before the date of termination and not yet collected.

Are the factoring commission and interest the same thing?
No. The commission is the price of the service the factoring company provides, whereas interest is the financing cost running on the amount paid in advance; these two items must be shown separately in the agreement.

How are the competent court and the applicable law determined in export factoring?
The parties generally agree expressly in the contract on the applicable law and on the judicial authority having jurisdiction; where there is no such choice, this is determined by taking into account the rules of private international law and connecting factors such as the parties’ place of residence.

Sources

• Mevzuat Bilgi Sistemi (the Legislation Information System, mevzuat.gov.tr)
• Mevzuat Bilgi Sistemi (the Legislation Information System, mevzuat.gov.tr)
• Mevzuat Bilgi Sistemi (the Legislation Information System, mevzuat.gov.tr)
• Türkiye Cumhuriyet Merkez Bankası (the Central Bank of the Republic of Türkiye, TCMB)

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• The Difference Between Proceedings Specific to Negotiable Instruments and Proceedings Without a Judgment
• Collecting a Commercial Receivable: Step by Step from Formal Notice to Enforcement
• Mandatory Mediation in Commercial Actions: Scope, Time Limits, Final Minutes
• Statutory Interest, Default Interest and Advance Interest: The Differences
• Restructuring, Limitation and Enforcement in Credit Card Debt
• Salary Attachment 2026: How Much Can Be Attached and How Is It Lifted?
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This article is for general information purposes and does not take the place of legal advice. Your particular situation requires a separate assessment of your file.

This article was prepared on the basis of the legislation in force as at 17.09.2026. Developments in factoring commission and interest rates may be followed through the TCMB.

Av. Muhammed Çakmak
Banking and Finance Law, Factoring Law, Enforcement and Bankruptcy Law, Commercial Law, Collection of Commercial Receivables
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