Validity of the Assignment of Receivables and Allocation of Default Risk in Factoring Agreements in Indonesia

Abstract

Factoring is a financing activity involving the purchase of trade receivables, resulting in the assignment of the right to payment and raising legal issues concerning the allocation of debtor default risk. This study analyzes the validity of receivables assignments and the allocation of default risk under factoring with recourse and factoring without recourse, based on the principle of contractual balance. This normative legal study employs statutory and conceptual approaches, using grammatical and systematic interpretation of civil law provisions, financing company regulations, and scholarly literature. The findings show that receivables purchase agreements, the assignment of receivables (cessie), and the effectiveness of assignments against debtors are subject to distinct legal requirements and consequences. The seller’s liability for the existence of a receivable differs from a warranty concerning the debtor’s ability to perform its obligations. Under factoring with recourse, risk allocation depends on the substance of contractual clauses, liability limits, and the legal consequences of payment for the right to collect. Under factoring without recourse, the financing company bears the risk of non-collection of valid receivables, while the debtor’s obligations and the seller’s liability for the existence of the receivables remain enforceable. Third-party suretyship, the repurchase of receivables, and subrogation produce distinct legal consequences according to their underlying obligations. The principle of contractual balance governs the relationship among contractual benefits, obligations, risk allocation, and recovery limits. Legal certainty requires clearly identified receivables, compliance with assignment requirements, and contractual provisions governing the consequences of payment to prevent recovery exceeding legally enforceable entitlements.