Starting a business in Panama: how to set up a factoring company if you are from Costa Rica
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 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 assists you in efficiently establishing a company in this country.
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.
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
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.
Decreased administrative workload: the factoring company handles invoice management and collection, enabling businesses to concentrate on their primary operations.
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 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 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) 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 Costa Rica
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 Costa Rica. 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.