Ukraine’s new law on factoring enhances transparency and legal certainty

On 3 June 2025, the Ukrainian parliament adopted the Law No. 12306 “On Factoring”. The law, which now awaits the President’s signature, is designed to enhance the regulatory framework governing factoring activities in Ukraine. One of its central goals is to implement the provisions of the UNIDROIT Model Law, which advocates for the harmonisation of international factoring regulations.

Key objectives and innovations

Prior to the adoption of this law, there was no comprehensive regulation of factoring in Ukrainian legislation. The rules governing factoring were not systematised, and their inconsistency with international standards hampered the functioning of factoring as a financial service in Ukraine. In particular, the absence of a clear definition and regulation of different types of factoring, including the prevalent practice of purchasing non-performing loans (NPLs) through non-bank financial institutions, created significant legal uncertainty and reputational risks for the market. The main objective of the new law is to eliminate these gaps and ensure the effectiveness of factoring operations and protection of the parties.

In particular, the law sets out detailed procedures for interaction between factors, clients, and debtors in the provision of factoring services. Notably, it introduces a system for the state registration of the assignment of claims, an essential step towards fostering transparency and reducing fraud in the market.

Introduction of state registration of assigned claims

Under the proposed law, the National Bank of Ukraine will act as the administrator and custodian of a dedicated Register. This Register will record:

• The assignment of monetary claims under factoring agreements;
• Any changes to such assignments;
•  Cancellations of registrations.

Assignments are registered based on an application submitted by a factor.

A documented transaction assigning a monetary claim must form an integral part of the factoring agreement and include:

1. A clear description of the assigned monetary claim;
2. The exact moment when the claim is transferred to a factor;
3. The price of the claim.

The law further establishes that a registered assignment of a monetary claim takes precedence over an unregistered one. This priority is determined solely by the time of registration, not by the date of the factoring agreement or the original claim.

Previously, the lack of a centralised registration mechanism created obstacles to verifying ownership of claims and opened the door to disputes and fraudulent multiple assignments, particularly in the secondary market for NPLs. The introduction of the Register addresses this legal vacuum.

Limitations on eligible claims

The law also outlines certain limitations. A factoring agreement cannot involve:

• Monetary claims whose performance term already expired at the time of agreement or assignment;
• Claims solely for penalties (e.g. fines or late fees) without the accompanying principal monetary obligation.

This is intended to curb abusive practices involving the transfer of irrecoverable or artificially inflated debts – practices which were previously used in relation to NPL portfolios, undermining consumer protection and eroding trust in factoring as a legitimate financial service.

Alignment with international best practices

This law is intended to safeguard the rights and interests of all parties involved in factoring transactions, promote competition, and enhance confidence in factoring services. It also represents a significant step forward in aligning Ukrainian law with global standards.

In addition, this legislation complements existing laws, including the Laws of Ukraine “On Banks and Banking” and “On Financial Services and Financial Companies”, which also regulate factoring.

Entry into force

The law will come into effect one year after the day following its official publication.

For more information on the law and the Ukrainian financial sector, contact your CMS client partner or these CMS experts: Ihor Olekhov.