[Direct answer]In the Beijing area, when a factor collects payments from a debtor, the debtor is not obliged to pay immediately. The debtor may raise defenses in accordance with the law, but the scope of such defenses is limited. According to the provisions of the Civil Code of the People's Republic of China on factoring contracts, after the notice of the transfer of receivables reaches the debtor, the debtor shall perform its obligations to the factor, but may assert its defenses against the original creditor (such as uncompleted deliveries, quality defects, and partial payments) to the factor; the debtor may not use the grounds of not receiving the transfer notice or not knowing about the transfer to oppose a bona fide factor. If the underlying transaction is false, has been settled, or the creditor does not exist, the debtor may refuse to pay. The key lies in verifying the authenticity of the transfer notice and the creditor's claim. It is recommended to first check the notice and the underlying contract when receiving the collection request. For more details, please refer to the following link:Financial capital and cross-border services involving foreign countries.

I. Problem Background and Typical Scenarios

Factoring business is becoming increasingly common in corporate financing, which has led to an increase in disputes over debtors being pursued for repayment. Typical scenarios include: suppliers transferring their receivables from buyers to factoring companies for financing, but the buyers subsequently refuse to pay on the grounds of "incomplete delivery of goods" or "non-compliance with quality standards", while the factoring companies still pursue collection; buyers who have already paid the suppliers privately but receive a second demand for repayment from the factoring company; and suppliers colluding with factoring companies to fabricate receivables, leaving buyers unjustly sued. Many debtors mistakenly believe that "the money is borrowed by the supplier and has nothing to do with me", and directly refuse to accept the notice, thereby losing the opportunity to defend themselves. There are also debtors who make duplicate payments due to their lack of understanding of the transfer facts, and it is difficult to recover the funds afterwards. In cases involving creditor confirmation, it may be combined with other legal remedies to safeguard their legitimate rights and interests.Creditor-debtor relations and enforcement case servicesClarify the order of repayment.

II. Key points of contention

There are three focal points of disputes over factoring recovery. Firstly, the scope of defense: the debtor can only raise defenses against the original creditor based on the underlying contract, and cannot mix in new disputes with the factor. Secondly, the effectiveness of notification: whether the transfer has been legally notified to the debtor. If no notification is made, it will not be effective against the debtor, and the debtor's payment to the original creditor may exempt him from liability. Thirdly, the protection of bona fide factors: if the debtor has known or should have known that the transfer still paid to the original creditor, he may not be able to oppose the factor. For cross-border and multi-party disputes, reference can be made to relevant provisions.Special services and other case services\nDetermining the applicable law and jurisdiction.

III. Professional analysis by Hengluo Lawyers

Based on practical experience in handling financial and contract disputes, the most common pitfall that factoring debtors often fall into is "ignoring notifications and making payments at will". Hengluo Lawyers usually advise: When receiving a factoring company's debt collection notice, the first step is to verify the form of the transfer notice and the underlying contract to confirm whether the receivables are genuine and whether they have been partially or fully settled. If there are defenses such as non-delivery of goods or quality defects in the underlying transaction, the debtor should clearly raise these defenses and provide evidence in the response, rather than making a general denial. It is particularly important to note that if the transfer has been effectively notified and the factoring company acts in good faith, the debtor's payment to the original supplier cannot extinguish the debt to the factoring company, and the debtor may face the risk of secondary settlement. For suspected false receivables or duplicate transfers, evidence should be fixed in a timely manner and claims should be made that the creditor's rights do not exist. For cases involving supply chain finance, follow-up actions can be taken accordingly.Financial capital and cross-border services involving foreign countriesEvaluate the transaction structure.

IV. Practical suggestions and legal basis

The legal basis is the provisions of the Civil Code of the People's Republic of China (effective from January 1, 2021) on factoring contracts (the notice of transfer of receivables takes effect against the debtor, the debtor may raise defenses in the underlying relationship against the factor, and the effectiveness of the debtor's performance to the original creditor under the notified circumstances is limited), as well as the rules on jurisdiction and evidence presentation in the Civil Procedure Law. Practical advice: Upon receiving a collection request, immediately require the factor to present the transfer agreement and notification documents; verify the underlying contract and actual performance and payment records; if there are valid defenses, raise them in writing and attach evidence; if the debt has been paid in full, provide payment receipts to claim the extinction of the debt; if there are suspicions of fraud, promptly report the case to the police and consult a lawyer. For multiple receivables, they can be combined and handled together.Intellectual property protection and corporate legal servicesEstablish an accounts receivable ledger.

5. Henglu Law Firm's Advice

When faced with the factoring company's demand for repayment, you should neither panic and pay immediately nor refuse to accept the demand outright. Please remember: You have the right to raise defenses against the original supplier based on the underlying contract, but only against the original supplier; after the effective notice of assignment, payment to the original supplier cannot be used to resist the factoring company, and there is a risk of double payment; and for those who have actually made payments, they must keep sufficient evidence. It is recommended to complete the three steps of "verifying the notice—verifying the underlying contract—collecting defenses" before responding, and clarify the situation in writing if necessary. Never make payments to unknown entities privately, so as to avoid falling into the trap of duplicate payment or fraud. For more responses to financial disputes, please refer to the relevant materials.Financial capital and cross-border services involving foreign countries.

VI. Frequently Asked Questions

Q1: If the factor comes to collect the debt, can I refuse to pay? Will I win the dispute?

Whether you can refuse to pay depends on whether you have a valid defense, not on the outcome commitment. If there are circumstances such as non-delivery of goods, quality defects, or partial or full repayment in the underlying contract, you can raise such defenses to the factoring company and have a high probability of getting support for a reasonable refusal to pay. If the receivables are genuine and you have indeed not made the payment, it will be difficult to refuse to pay. In addition, if the transfer has not been effectively notified to you, you can be exempt from liability if you make payments to the original supplier. It is recommended to first verify the authenticity of the notification and the creditor's claim, and then decide on a response strategy. Do not easily believe in unrealistic promises of winning the case. The outcome will be determined by facts and evidence.

Q2: If I refuse to accept the collection request from the factoring company, what evidence do I need to prepare?

The core evidence includes: the transfer notice and collection letter issued by the factor (proving the basis of the claim), the underlying transaction contract (proving the rights and obligations and the basis of the defense), the performance and delivery certificates (proving the non-delivery or quality defects), the payment and reconciliation records (proving the partial or full repayment), and the communication records with the original supplier. The organization of the evidence should focus on "whether the transfer has been notified—whether the underlying debt exists—whether it has been repaid—whether the defense is established". The more complete the materials are, the more they can support the refusal or reduction of payment. If necessary, you can apply to the court to retrieve the factor registration information.

Q3: If I hire a lawyer to deal with the factoring company's debt collection, what are the approximate costs involved?

The litigation or arbitration fees shall be accumulated in accordance with the "Measures for the Payment of Litigation Costs" based on the amount of the claim, and shall be borne by the losing party. The attorney's fees shall be charged on a per-case basis or as a percentage of the amount of the claim, depending on the complexity of the case, the amount of the claim, and the workload. There is no unified national standard for this, and the specific fees shall be subject to the contract of entrustment. Factoring cases often involve a double review of the underlying contract and the transfer relationship. It is recommended to require the law firm to provide a detailed fee breakdown before entrusting them, clarifying whether it includes travel expenses, appraisal fees, and litigation fees, to avoid price increases during the process, and to balance the fees with the potential defense benefits that can be obtained.

Q4: How long does it usually take to litigate a factoring dispute?

The first-instance ordinary procedure generally concludes within six months, and the summary procedure within three months; for fact-clear and evidence-sufficient factoring recourse cases, the summary procedure can be applied, with a shorter timeframe. However, if it involves appraisal of the underlying transactions or cross-border evidence collection, the ordinary procedure will take a longer time. For appeals, the second-instance procedure generally lasts three months. Enforcement after the judgment takes effect will be dealt with separately. Overall, simple factoring defense cases often take several months from filing to adjudication. It is recommended to complete the notification and verification of the underlying contract before suing, shorten the time for fact-finding, and apply for property preservation when necessary.

Q5: If I receive a notice from the factoring company demanding repayment, what should I do specifically?

It is recommended to proceed in five steps: First, require the factor to present the transfer agreement, notification documents, and a detailed list of receivables, and verify their authenticity. Second, retrieve the underlying contract and actual performance and payment records to confirm whether the debt exists and has been settled. Third, if there are defenses such as undelivered goods or quality defects, submit them in writing with supporting evidence to avoid blanket refusals. Fourth, if the transfer has been notified but you have not yet made payment, handle the matter with caution and avoid making duplicate payments to the original supplier privately. Fifth, if there are suspected fraudulent receivables or duplicate transfers, report the matter to the police immediately and consult a lawyer. Throughout the process, retain all communication and payment records, and, if necessary, engage a lawyer to respond and defend against lawsuits.

The above Q&A is mainly based on the judicial practice in Beijing. There may be differences in the adjudication opinions in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence, to avoid missing the statutory time limits.Financial capital legal services·Beijing Hengluo Law Firm

Disclaimer: This article is compiled based on current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.