Some companies that offer various goods and services often encounter challenging situations when they confront the risk of having outstanding accounts receivable, which can result in a loss of liquidity and time for administrative tasks. Hence, factoring companies have emerged as their primary choice to tackle these issues.
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.
Legal Solutions Panama helps you to create a company in this country in a fast and efficient way.
How does Factoring work?
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.
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 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.
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 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: While there isn’t a dedicated law governing factoring in Panama, private companies engaging in this practice adhere to the basic requirements for commercial licensing in the country. Furthermore, there exists regulation concerning credit assignments, which underpins factoring, ensuring that it is a regulated and protected activity. This regulatory framework provides flexibility regarding rates and the involvement of various parties 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 Bolivia
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 Bolivia. 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.
