What are the benefits of the Exchange Invoice?

The recently enacted Law No. 6542/2020, which will come into force in mid-December 2020, regulates three legal figures: the factoring contract, the exchange invoice, and the SEOG (Electronic System of Guaranteed Operations, “SEOG” for its Spanish acronym). In this article, we will analyze the exchange invoice.

The regulation of the exchange invoice was a debt of our normative system and, at the same time, a legal necessity. Even though article 448 of the Code of Civil Procedures mentions the exchange invoice as a negotiable instrument, its use, requirements, and formalities were not regulated until now. 

With the new law, the legal figure we knew as a conformed invoice (“factura conformada” in Spanish) is now referred to as an exchange invoice (“factura cambiaria” in Spanish). Article 12 of Law No. 6542/20 defines the exchange invoice as “(…) the negotiable instrument issued to the order, at the expense of the purchaser of a good or service, who is obliged to pay the legitimate holder the amount of money stated on the instrument, at its expiration.” In other words, the exchange invoice incorporates a right to a credit on the whole or the unsettled part of the sale or service. This instrument will be used to accredit a sale of products or services at a certain term (on credit) that may later be subject to a factoring operation.

Currently, our country is facing a financial inclusion of less than 30%. The regulation of exchange invoices intends to reverse this situation by providing a new opportunity for Miypmes, reducing social asymmetries, formalizing operations, and providing greater competitiveness in the financial field. 

Indeed, one of the exchange invoices’ main virtues is the dynamism it gives to the market, especially to micro, small and medium enterprises, which were strongly affected by the pandemic. Once the debtor accepts the exchange invoice, the issuer can transfer or transmit the instrument by endorsement to the order, allowing a rapid obtention of liquidity. The law also contemplates issuing these invoices electronically, which further boosts the economy by facilitating their circulation and endorsement. 

Law No. 6542/20 establishes in detail the minimum requirements for the validity of the exchange invoice. In this sense, the instrument must have: 

  1. The legend “factura cambiaria” inserted in the text of the instrument;
  2. Place and date of emission; 
  3. Due date of the obligation expressed as a fixed day;
  4. Concept of emission;
  5. Amount due, expressed in numbers, letters, and type of currency. The amount must also be broken down into the gross amount per sale or service and the amount for VAT. In turn, the title must clearly express the total net amount to be paid;
  6. Name or corporate name and single taxpayer registration (“RUC” for its Spanish acronym) of the issuer;
  7. Name or corporate name, single taxpayer registration number (RUC) or civil identity card, of the debtor or dependant, and;
  8. Debtor’s domicile and place of payment.

Although the law establishes the essential requirements mentioned above, it is clarified that the tax authorities (SET) may incorporate new regulations in addition to those previously mentioned. 

For the exchange invoice to be enforceable, meaning, for it to be subjected to an expedited procedure, the signature of the debtor or the endorsers, as the case may be, must be recognized judicially or certified by a public notary with the intervention of the debtor and registered in the respective book. 

As a negotiable instrument, the exchange invoice is a literal document with executive force over a determined capital and accessories. Meaning, when presented in courts, a discussion of the obligation’s cause will not be necessary.

One of the fundamental requirements for the conformation of the exchange invoice is the acceptance of the debtor. The law tells us that the issuer must present the original invoice to the debtor to accept it. The acceptance must be stated in the invoice by means of the words “I accept” and the signature of the debtor if it is an individual, or of its representative if it is a legal entity. The clarification of who may accept the exchange invoice is a welcome novelty since the drafts before enacting the aforementioned law said nothing about it. It undoubtedly provides greater legal certainty for both the debtor and the issuer. 

The acceptance of the exchange invoice leads to two issues. Firstly, the invoice must be returned to the issuer, with the debtor retaining a copy. Second, it is upon acceptance that the invoice can be transmitted by means of an endorsement to the order with the endorsee’s express identification. 

The debtor will have ten days from the issuer’s delivery of the exchange invoice to pronounce its acceptance or lack of endorsement. Suppose the debtor does not make a statement within the period of time. In that case, it will be understood that there has been an acceptance, and the issuer will be entitled, on expiry of the period of time set out in the invoice, to execute it against the obligor. In this case, the document shall be considered enforceable by demonstrating that the invoice was received and signed by the debtor. 

Once the exchange invoice has been issued, no other type of instrument is accepted to document the obligation. 

Finally, it is worthwhile to re-emphasize the benefits and opportunities that this new legal figure brings. Above all, its value lies in helping micro, small, and medium enterprises by energizing the economy through its ease of transmission and allowing its active circulation, thus avoiding the need to resort to the ordinary credit assignment.