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.
Legal Solutions Panama assists you in efficiently establishing a company in this country.
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.
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.
Benefits of factoring for businesses
Among its benefits, factoring includes:
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.
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.
To 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: 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) 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 Peru
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 Peru. 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.
