Ukrainian businesses have gained a new tool for their development—on June 3, 2025, the Verkhovna Rada adopted Law of Ukraine No. 12306 “On Factoring” (initiated on December 11, 2024). The law takes effect on the day following its publication and comes into force one year later.

This document has the potential to significantly impact the financial services market, particularly a mechanism as important to many companies as factoring. Let’s examine the key aspects of this new legislation and its significance for entrepreneurs.

Why does Ukraine need a new factoring law?

Factoring is a financial service that allows companies to quickly obtain funds by assigning their monetary claims against their debtors. This instrument has long been known in Ukraine but has never been properly regulated by law. Incomplete and fragmented legislation, a lack of transparent mechanisms to protect the rights of market participants, and insufficient alignment with international practices were the main obstacles to its development. The rules governing factoring were “scattered” across various codes and laws, which clearly did not promote clarity and predictability.

The new law is designed to address these issues. Its main goal is to create clear, effective, and secure conditions for conducting factoring transactions. In turn, this will help businesses improve their liquidity (i.e., their ability to quickly settle their obligations), accelerate cash flow, and, ultimately, contribute to economic growth. In a situation where access to bank loans may be difficult, factoring becomes particularly relevant.

Key Changes: What Does Law No. 12306 Change?

Law No. 12306 introduces a number of important changes aimed at creating a more transparent, secure, and efficient factoring services market. Let’s take a closer look at them:

1. Creation of a Public Electronic Register of Assignments of Monetary Claims. This is arguably one of the most significant and long-awaited innovations. In the final version of the Law (Article 11), the administrator and custodian of this registry is designated as a state agency or a public-sector entity to be determined by the Cabinet of Ministers of Ukraine. It is worth noting that in the initial version of the bill, these functions were assigned to the National Bank of Ukraine. This change likely reflects the legislature’s desire to separate functions, allowing the NBU to focus on its core regulatory and supervisory tasks, while the technical administration of the registry will be entrusted to a more specialized institution designated by the Government. The date, hour, minute, and second of entry into the Registry shall be deemed the date of registration of the assignment of a monetary claim. A fee is charged for entry into the Registry, and the entry is retained in the Registry for five years from the date of its entry.

The main purpose of the Registry is to ensure market transparency and significantly reduce the risk of fraud. In particular, the Registry is designed to prevent situations where the same monetary claim (i.e., debt) is assigned (sold) multiple times to different parties. Information about registered assignments will be made public in real time. This innovation is a direct response to one of the key problems of the previous regulatory framework—the lack of a mechanism for recording and providing public access to information about assigned claims, which posed significant risks to all market participants.

2. Clear definitions of key terms. The law establishes unambiguous definitions for terms such as “factoring,” “factor” (defined as a financial services provider that has acquired the right to provide factoring services in accordance with the procedure established by law), “client” (a person who assigns a monetary claim to a factor), “debtor” (a person obligated to pay a monetary claim), and “monetary claim.” Clear definitions are fundamental to any legal act, as they eliminate potential misunderstandings, simplify the interpretation of legal provisions, and create a solid foundation for the uniform application of the law by all market participants and courts.

3. Defining the Scope of the Law and Exceptions. It is important that the Law clearly delineates the specific relationships to which it applies and establishes a number of exceptions. In particular, the Law does not apply to:

• Transactions involving the assignment of a monetary claim arising from contracts for the provision of financial services other than factoring agreements (such transactions are governed by special laws).
• Transactions that do not provide for the payment of any compensation (commission, discount, etc.) to the new creditor.
• Transactions entered into by persons who do not meet the requirements of this Act and/or that involve the transfer of a monetary claim against a debtor who is a natural person (with the exception of a natural person who is an entrepreneur). This restriction is important from the perspective of consumer protection.
• Transactions involving the assignment of a monetary claim whose performance period had already expired at the time such a transaction was entered into.

These exceptions are critical for delineating the scope of application of the Law and avoiding conflicts with other regulatory acts.

4. Clarification of the subject matter and content of a factoring agreement. The Law aims to clearly define what exactly may be the subject matter of a factoring agreement and what its essential terms are. Although the initial drafts of the bill were criticized for failing to specify these aspects sufficiently, the final version of the Act, following revisions, is expected to provide greater legal certainty. Standardizing the essential elements of a factoring agreement will promote predictability for all parties to the transaction and reduce the number of potential disputes.

5. Specification of the Parties’ Rights and Obligations. The Law regulates in detail the rights and obligations of the factor, the client, and the debtor. For example, it establishes the factor’s right to receive the funds due to it under the agreement before other creditors in the event of the debtor’s insolvency. A clear delineation of rights and obligations is key to preventing disputes and resolving them effectively, as well as to ensuring a fair balance of interests in factoring legal relationships.

6. Regulation of the Validity and Effectiveness of the Assignment of a Monetary Claim. This aspect addresses issues related to the point at which the assignment of a monetary claim becomes effective with respect to the debtor and third parties. The aforementioned Public Electronic Register of Assignments will play a key role in establishing the priority and enforceability of the assignment against third parties. These provisions are critical to safeguarding the factor’s rights and ensuring the overall reliability of factoring as a financing mechanism.

These and other changes introduced by Law No. 12306 are aimed at making factoring in Ukraine a more modern, secure, and effective tool for business.

Harmonization with International Standards as a Path to Development

An important aspect of the new Law is its focus on implementing the provisions of the UNIDROIT Model Law on Factoring. UNIDROIT is the International Institute for the Unification of Private Law, and its model laws are a recognized international standard. Bringing Ukrainian legislation in line with these standards makes our market more transparent and attractive to foreign investors and financial institutions, and also simplifies international factoring transactions. Ukraine is already a party to the UNIDROIT Convention on International Factoring (Ottawa, 1988), and the new Law continues this trend.

To ensure consistency across all regulations, amendments to the Civil Code of Ukraine (Draft Law No. 12307) were developed in parallel with the Law “On Factoring.” These amendments provide for the removal of outdated provisions and an update to the definition of a factoring agreement in the Civil Code.

Potential Impact and Expectations from the Reform

The adoption of Law No. 12306 opens up new opportunities. For financial institutions, this means greater legal certainty, reduced risks, and, as a result, the ability to offer clients a wider range of factoring products and increased competition in the market.

For businesses, especially small and medium-sized enterprises, factoring should become a more accessible and secure tool for managing cash flows, accelerating the receipt of funds for goods delivered or services rendered, and avoiding working capital shortages. This is particularly important during periods of economic instability.

At the macroeconomic level, the development of the factoring market, supported by the new law, can help revitalize business activity, simplify trade transactions, and improve the overall business environment. Increased transparency of financial transactions and compliance with international standards will undoubtedly have a positive impact on Ukraine’s investment attractiveness.

Of course, the success of the reform will depend on many factors, including how quickly and effectively the Cabinet of Ministers of Ukraine appoints the Registry administrator and how soon the Registry is launched, how quickly market participants adapt to the new rules, and how case law develops.

Conclusions: Strategic Steps for Market Participants

The new Law “On Factoring” is a fundamental step toward creating a modern and well-regulated financial services market. However, the law itself is merely a foundation. Its effectiveness will depend on the actions of all stakeholders.

At the same time, there is every reason to believe that joint efforts will allow the potential of the new Law to be realized for the benefit of Ukrainian business and the country’s economy.