The term “factoring” refers to the purchase of receivables against payment. Factoring is usually divided into non-recourse and recourse factoring.

In the case of non-recourse factoring, the factoring company buys up receivables from companies, which these companies have in relation to their respective customers. The factoring company assumes the risk that the receivables will default (so-called default risk). For private law purposes, this constitutes a purchase of rights.

In the case of recourse factoring, the receivables are also transferred to the factoring company, but the factoring company does not assume the default risk. The factoring company can take recourse to the company in case there is a default regarding the purchased receivables. For private law purposes, this constitutes a loan agreement.

This classification has a variety of financial consequences (i.e. on the balance sheet) as well as under private law. However, this is not relevant for the question of factoring licences.

Depending on its structure, factoring business may require licence under the German Payment Services Supervision Act (ZAG) or the German Banking Act (KWG). This is because factoring is considered a financial service pursuant to S. 1 para. 1a No. 9 KWG and also a payment service pursuant to S. 1 para. 1 sentence 2 No. 6 ZAG (money remittance business). BaFin considers there to be money remittance business if the service, from an economic point of view, is aimed at payment processing and not at the financing of the contractual partner. In the latter case, the factoring company requires a factoring licence under the ZAG. If, on the other hand, the financing function is the main focus of the transaction, a factoring licence is required under the KWG.