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The New Definition of Default (also known as NDOD) is a European regulation.
Its objective is to prevent defaults by strengthening their detection and supervision within all European banks and financial institutions.

A new governance has been established within BNP Paribas Factor to promote the proper treatment of default situations.

Faced with the evolution of this regulation, several questions may arise.
To accompany you, a frequently asked questions is available below
What is the « default »? A default (declaration of default) corresponds to a deterioration in the financial situation of the counterparty that casts doubt on its ability to repay its loans/obligations in full without appropriate measures such as the realization of any guarantees being verified.  
What is the scope of the regulation? All (and only) financial institutions, operating in an intra-community country, are concerned: credit institutions, finance companies and investment firms.
What are the reference text(s) of the regulation? European Regulation: 0rientations on the application of the definition of default under art 178 of the EU Regulation n° 575/2013EBA /GL/2016/07.
Guidelines here.

This is not a new regulation but an evolution that aims to strengthen, for financial institutions, the monitoring and actions following the detection of a payment default.

Thus, the European Banking Authority has established criteria and standards for the evaluation of "third parties" in default in order to harmonize the practices of financial institutions in European Union countries.

These guidelines have been set by the European Banking Authority to come into force on January 1, 2021, for the "Third Party Customer" axis; 
And on December 31, 2022, for the "Third Party Buyer" axis in default (additional time granted).
Why is factoring affected by this regulation? BNP Paribas Factor is a financing company subject to the regulations of the European Banking Authority.
What are the new obligations for financial institutions? Financial institutions will have to declare "default" in their internal tools as well as to the relevant authorities (e.g. Banque de France).
For companies domiciled in France, can the term "unpaid" mentioned in the letter be considered as a Banque de France incident? Unpaid or overdue, in the sense of these regulations, is defined as late payment of more than 90 days. 

This delay is considered a probable sign of non-payment.
In the case of a "non-recourse" factoring contract, this will be a declaration of "default" in BNP Paribas Factor's internal tools and not a declaration for "payment incident".
In the context of the operation of the factoring contract, what are the consequences for buyers? The presence of invoices overdue by more than 90 days in BNP Paribas Factor's books will de facto lead to the withdrawal of the authorizations under this regulation.

In addition, the default of the Third Party will open a probationary period (monitoring) of 3 months incompressible.
Do clients have an obligation to inform their buyers about regulatory changes? Our clients are not required by law to inform their buyers.

Nevertheless, in the presence of late payment, an awareness of the latter on the impacts (and potential consequences) of this situation can be recommended.
I have a dispute with my customer about the good execution of the service or the delivery of the goods, am I concerned? As long as the dispute has not been resolved, the invoice cannot be presented and is therefore excluded from the defect. 
I am in charge of the recovery and collection of my contract, am I concerned? Yes, the management mandate granted implies that you are responsible for monitoring receivables and collection. 
For receivables that remain unpaid, you must provide BNP Paribas Factor with all the details regarding the nature and justification of these unpaid invoices and inform the buyer of the steps taken and actions taken. 
Your contract also provides for the exclusion of disputed invoices after a period of 30 days.
As a result, the presence of invoices overdue by more than 90 days in BNP Paribas Factor's books will result in the de facto withdrawal of the authorizations.
How to prevent the "default"? The correct payment of the invoice extinguishes the risk of "default". 

Your usual contacts at BNP Paribas Factor must be informed of any situation preventing/delaying payment of the invoice. 
Such as: 
  • overdue invoices subject to dispute or litigation, 
  • invoices subject to credit notes not yet assigned, 
  • invoices that have been settled directly, 
  • or any other reason

For any other questions, we recommend you to contact your usual contact person who will be able to answer your questions more precisely.

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