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 operate?
The factoring process generally works as follows: a company sells goods or services to its customers and issues an invoice with a specified payment term, which may 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:
Improved liquidity: they gain quick access to funds without having to wait for their clients to pay 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.
Reduced administrative burden: the factoring company manages and collects invoices, allowing businesses to focus on their core activities.
Assistance for small and medium-sized enterprises: factoring companies are particularly beneficial for SMEs looking to enhance their cash flow and lacking straightforward access to alternative financing like bank loans. Moreover, this service can serve as an effective tool for enhancing a company’s financial management and planning, guaranteeing a consistent income stream.
To open a factoring company in Panama
Panama’s legislation offers several advantages that facilitate the establishment and operation of factoring companies in the country. Here are some of the most important laws:
Corporation Law: Panama has flexible and modern legislation for the incorporation of corporations (Law 32 of 1927). This law allows for the quick and efficient creation of companies, with minimum capital requirements and an adaptable corporate structure, which is ideal for establishing 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 laws ensure parity in treatment between domestic and foreign investors. This safeguard encompasses protection against expropriation and the unrestricted transfer of capital and profits, fostering a secure setting for the investment and functioning 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) regulate the country’s financial system, ensuring a stable and well-supervised financial environment. These laws are crucial for factoring companies, which depend on a reliable financial system for their operations.
Legal Solutions, the perfect assistance for launching a factoring company in Panama if you are from Brasil
As evident, Panama is a nation that aids foreign investors in pursuing various financial ventures due to the legal benefits it offers. Nonetheless, it is essential to thoroughly understand the legislation to ensure a prosperous business, leveraging all the advantages of this Central American country.
In this context, Legal Solutions is a Panamanian law firm that provides information and assistance for investors from Brasil. They provide a complimentary 30-minute consultation with their team of experts to address queries and assess potential business opportunities and establish a company in Panama.
