Business financing contracts: factoring, leasing, renting and credit assignment

Factoring is the assignment of your company's invoice portfolio (commercial credits) to a factor, usually a financial institution, which advances the amount, manages collection and, depending on the modality, assumes the risk of non-payment. It is governed by the Código de Comercio (Commercial Code), the Código Civil (Civil Code) (arts. 1526 to 1529) and the special regime for certain credit assignments of Ley 1/1999 (the Spanish Law on Credit Assignments).

In NON-RECOURSE factoring (pro soluto assignment) the factor assumes the debtor's insolvency risk: if the client does not pay, the loss belongs to the factor. This is the modality that allows you, when risks and benefits are substantially transferred, to remove the invoices from the balance sheet. In RECOURSE factoring (pro solvendo) you remain liable for non-payment: if the debtor does not pay, the factor returns the invoice to you. It is essentially guaranteed financing using your client portfolio.

There are common variants: confirming (reverse factoring, where the entity pays your suppliers on your behalf) and international factoring for exports.

For VAT, the official criterion (Resolución 1/2004 of the Directorate General for Taxes and the VAT Manual of the AEAT, the Spanish Tax Agency) is that the services the factor provides to the assignor (collection management, insolvency coverage, portfolio administration) are NOT exempt; only the advance of funds is exempt as a credit concession (art. 20.Uno.18 of Ley 37/1992, the Spanish VAT Act).

Managora drafts the factoring contract for you in the modality you need, with the list of assigned credits and the notification templates for each debtor. You can see the updated amount on the procedure's page.

The assignment of a credit is valid without the debtor's consent: they do not need to accept it. However, there is a practical trap: as long as the debtor is unaware of the assignment, any payment made to the original creditor releases them (art. 1527 CC). That is, if you buy a credit and do not notify it, you may find that the debtor has already paid someone else and paid correctly. Reliable notification closes this route: once received, only paying the new creditor releases them.

Furthermore, against third parties the assignment only takes effect from the moment its date is considered certain according to the law (art. 1526 CC), the assignment includes the credit's accessories, such as the guarantee, mortgage, pledge or privilege (art. 1528 CC), and the good faith assignor is liable for the existence and legitimacy of the credit, but for the debtor's solvency only if expressly agreed (art. 1529 CC); if the solvency agreement does not set a term, the liability lasts 1 year according to art. 1530 CC, a supplementary rule that the parties can replace with the duration they agree upon.

For non-endorsable commercial credits, the Código de Comercio (Commercial Code) also applies (arts. 347 and 348): the creditor can transfer them without the debtor's consent, simply by making them aware of the assignment, and from that moment the debtor only legitimately pays the new creditor.

The usual notification methods are a burofax with text certification and acknowledgement of receipt, notarial channels, certified mail or a telematic method that leaves an accredited record. Managora drafts the notification letter for you with the amount, the maturity date, the new payment IBAN and the appropriate sending method; effectiveness is immediate upon accredited receipt.

Leasing is the contract by which a credit institution or a financial credit establishment acquires the asset you choose (machinery, vehicles, real estate) and grants you its use in exchange for periodic instalments, with a mandatory PURCHASE OPTION in your favour at the end for the residual value. This is defined by the third additional provision of Ley 10/2014 (the Spanish Law on the Regulation, Supervision and Solvency of Credit Institutions): the assignment of the use of movable or immovable property acquired for that purpose according to the user's specifications, allocated to their economic exploitation, with a necessary purchase option at its end.

The tax advantage is in art. 106 of Ley 27/2014 (the Spanish Corporate Income Tax Act): if the contract lasts at least 2 years (movable property) or 10 years (real estate or industrial establishments), distinguishes in each instalment the cost recovery and the financial burden, and the cost recovery part is constant or increasing, then the financial burden is fully deducted and the cost recovery is deducted in an accelerated manner: up to double the maximum linear depreciation coefficient from the tables, and up to triple if your company is of small dimension. For real estate, the part of the instalment corresponding to the land is not deductible this way.

The instalments carry VAT at the general rate of 21%. The contract can be registered in the Movable Property Registry (under the framework of Ley 28/1998, the Spanish Instalment Sales Act), which strengthens the parties' position against third parties; real estate leasing can be elevated to a public deed and registered in the Property Registry, a step that Managora indicates and coordinates for you when the case requires it.

There is also lease-back: you sell your own asset to the entity and continue using it as a financial lessee, obtaining immediate liquidity without losing the use of the asset.

Managora drafts the leasing contract for you and validates that it meets the requirements of art. 106 LIS so as not to lose the accelerated depreciation. The service amount is shown on the procedure's page.

Renting is an operating lease of movable property (vehicles, machinery, computer equipment) WITHOUT a typical purchase option: you pay a fixed instalment that includes the agreed services (maintenance, insurance, vehicle taxes, tyres, replacement in case of breakdown, depending on the contract) and at the end you return the asset or renew. It is based on the lease of things in the Código Civil (Civil Code) (art. 1542) and the freedom of agreements.

Accountingly and fiscally it is simpler: the instalment is a deductible expense for the financial year in Corporate Income Tax if the asset is allocated to the activity, and the asset does not enter your balance sheet when the contract is an operating lease according to the Plan General de Contabilidad (General Accounting Plan). For passenger vehicles, the Ley del IVA (VAT Act) presumes a 50% allocation, so initially half of the VAT on the instalments is deducted, with cases of full deduction (transport, commercial vehicles and other qualified uses). In Personal Income Tax (IRPF), the general rule to deduct the vehicle expense is exclusive allocation.

Renting is interesting when you want a fixed budget, periodic renewal and zero management of the asset; leasing is interesting when you want to end up being the owner and take advantage of the accelerated depreciation of art. 106 LIS. The comparison below summarises the decision.

Managora drafts the renting contract for you with the included services clearly defined, the maximum mileage or use and the return conditions, which is where conflicts arise.

In factoring: whether the assignment is global or for specific debtors, the advance limits per client, the factoring commission and the advance interest, whether there is recourse or not, the retrocession of invoices disputed by the debtor, who notifies the assignment and in what timeframe, and the treatment of credits, discounts and compensations that the debtor may oppose.

In leasing: the residual value of the purchase option, the depreciation schedule with separation of cost recovery and financial burden (essential for art. 106 LIS), the early cancellation commission, the mandatory insurance of the asset, the subrogation in actions against the supplier if the asset turns out to be defective (lessors usually exonerate themselves from the asset's defects) and the consequences of non-payment and early maturity.

In renting: the maximum mileage or hours of use and the price for excess, the exact list of included services, the insurance excess, the penalty for early cancellation, the return condition criteria and damage charges, and the conditions for extension or replacement of the asset.

In credit assignment: the guarantee of the existence and legitimacy of the credit, the express agreement of liability for the debtor's solvency if you want it (without an agreement it does not exist, art. 1529 CC), the duration of that liability (if no term is set, 1 year according to art. 1530 CC), the assignment price, who notifies the debtor and in what timeframe, and the delivery of all the credit documentation (contract, invoices, debt acknowledgements).

Managora prepares the 4 contracts and the notification to the assigned debtor: choose the procedure's page (factoring contract, leasing contract, renting contract or credit assignment notification), complete the online questionnaire and receive the document ready to sign. The updated amount for each service is shown on its page.