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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 helps you to create a company in this country in a fast and efficient way.
How does factoring operate?
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:
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.
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 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) 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 ideal support to open a factoring company in Panama if you are from España
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 España. 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.
