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 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:
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.
Reduced administrative burden: the factoring company manages and collects invoices, allowing businesses to focus on their core activities.
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 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) 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 Chile
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 Chile. 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.
