Some companies dedicated to different goods and services find themselves in difficult situations when they have to face the risk of having accounts receivable, thus losing liquidity and time for administrative tasks. For this reason, factoring companies became their first choice to address these problems.
A factoring company is a financial entity that specializes in offering financing services to companies by purchasing their accounts receivable or outstanding invoices. This kind of firm provides immediate liquidity to its clients by acquiring these documents at a reduced price, assuming the risk of collection and the responsibility for their administration.
Legal Solutions Panama assists you in efficiently establishing a company in this country.
How does Factoring work?
The factoring process typically functions as follows: a company sells goods or services to its customers and generates an invoice with a set payment term, which could be 30, 60, or 90 days.
Instead of waiting for the customer to pay, the company sells that invoice to a factoring company, immediately receiving a portion of the total value of the account, typically 70-90%. Once the customer pays the invoice, the factoring company gives the remaining balance to the company, deducting a fee for the service rendered.
Benefits of factoring for businesses
Some of the benefits of factoring are:
Enhanced liquidity: businesses obtain rapid access to funds without needing to wait for their clients to settle their invoices.
Risk management: they transfer the risk of non-payment to the financing company. This means the factoring company assumes the risk if the client doesn’t pay, according to the agreement between the Factor and the Assignor.
Decreased administrative workload: the factoring company handles invoice management and collection, enabling businesses to concentrate on their primary operations.
Help for small and medium-sized companies: factoring companies are especially useful for small and medium-sized enterprises (SMEs) that need to improve their cash flow and do not have easy access to other types of financing, such as bank loans. In addition, this service can be an effective tool for improving a company’s financial management and planning, ensuring a steady flow of income.
Open a factoring company in Panama
Panama’s legislation provides numerous advantages that streamline the founding and functioning of factoring companies within the country. Here are some of the key laws:
Corporation Law: Panama boasts flexible and contemporary legislation for the formation of corporations (Law 32 of 1927). This law enables the swift and effective establishment of companies, featuring minimal capital prerequisites and a flexible corporate framework, making it well-suited for setting up a factoring company.
Regulation: although there is no specific law regulating factoring in Panama, private companies perform this activity that comply with the minimum requirements for commercial licenses in Panama. In addition, there is regulation of credit assignments, which is the backbone of factoring, therefore it is not an activity that is unregulated or unprotected. This type of regulation allows flexibility with the rates and the number of participants in the business.
Protection of foreign investments: Panamanian legislation guarantees equal treatment between national and foreign investors. This situation includes protection against expropriation and the free transfer of capital and profits, which provides a secure environment for the investment and operation of factoring companies.
Sound financial system and prudential regulations: The Superintendencia de Bancos de Panamá (SBP) and the Superintendencia del Mercado de Valores de Panamá (SMV) oversee Panama’s financial system, guaranteeing a secure and closely monitored financial landscape. These regulations are vital for factoring companies, which rely on a dependable financial system for their activities.
Legal Solutions, the perfect assistance for launching a factoring company in Panama if you are from España
As can be seen, Panama is a country that helps foreign investors undertake different financial initiatives thanks to the legal advantages it provides. However, it is necessary to know the legislation meticulously to achieve a successful business, taking advantage of all the benefits of the Central American country.
In this regard, Legal Solutions is a Panamanian law firm that facilitates information and work for investors of España. They offer a free 30-minute consultation with the team of professionals to evacuate doubts and evaluate potential business and establish a company in Panama.
