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 institution that focuses on providing financing services to businesses by buying their accounts receivable or unpaid invoices. Such firms offer instant liquidity to their clients by purchasing these documents at a discounted rate, taking on the collection risk and administrative duties.
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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.
Rather than awaiting payment from the customer, the company opts to sell the invoice to a factoring company, promptly acquiring a percentage of the total value of the account, usually around 70-90%. Upon the customer settling the invoice, the factoring company disburses the remaining balance to the company, deducting a fee for the provided service.
Advantages of factoring for companies
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 mitigation: they shift the risk of non-payment to the financing company, with the factoring company assuming responsibility if the client fails to pay, as per 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.
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.
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 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) 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 Colombia
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 context, Legal Solutions is a Panamanian law firm that provides information and assistance for investors from Colombia. 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.
