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Investing in Panama: how to open a factoring company if you are from Ecuador
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 assists you in efficiently establishing a company in this country.
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:
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.
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 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 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 Ecuador
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 Ecuador. 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.