Categories: Blog
There is a flexible tool to turn to when a company requires a short-term liquidity to operate normally. Factoring (also known as discount of invoices) is a figure that is used in Costa Rica to get financing, without the need to go to a bank to process a loan. It consists to convert into cash, accounts receivable: Invoices, bills of exchange, promissory notes, contracts, among others.
In Costa Rica more than 50 companies provide factoring services, including banks, financial institutions, individuals and legal entities.
Concept of factoring:
Factoring, according to the Cámara Costarricense de Empresas de Factoreo (Costa Rican Chamber of Factoring Companies / CCEF / factoreo.co.cr), is a financial product that consist in anticipating the payment of an account receivable, which is given to an individual or a legal corporation, which in turn, becomes responsible for managing and collecting the document.
The concept of factoring is so broad in Costa Rica, continues the CCEF, that today values such as invoices, bills of exchange, promissory notes, contracts, and other documents can be deducted supporting the accounts receivable of a client.
The 3 actors of factoring:
- Client: Person that gets funds equivalents to services already granted or products already sold, and whose invoices have not been paid.
- Factor: Company that provides the factoring service (gives the money and is responsible for collecting the invoices) in return of a commission previously established by the parties.
- Debtor: A person or company that owes money to the Client.
Client requirements to opt for the factoring:
- The company profile, including the list of its more distinguished clients
- Incorporation act
- Certificate of Incumbency
- ID of the company representatives
- Financial statements for the last two or three fiscal years
- Bank statements
- Invoices to discount, as these must complete specific requirements
- In addition to these requirements, the parties establish a contract where the terms and conditions of the factoring are specified, including the commission that the Factor will receive for collecting the invoices.
It is important to mention that the requirements may vary depending on the Factor. There are individuals and companies that do not ask all the requirements above-mentioned, so the process is more expedite.
ERP Lawyers can refer you a Factor in case you need to discount an invoice.
Benefits of factoring:
- The Client receives cash very quickly, as if they were cash invoices
- The factoring is much easier and faster than going to a bank to process a loan
- The administrative costs of the factoring are much lower than, for example, the costs charged for a loan by a bank
- The type of warranty does not put liens on the assets of the Client
- The accounts receivable, being managed by a third party, are processed more efficiently
- The Factor also becomes a business advisor for the Client
What happens if, when using factoring, the Debtor doesn’t pay the debt?
Although the Client receives the money for the owed invoices in advance, he can’t detach from the final payment, if this is specified in the factoring agreement.
If the Debtor fails to pay the amounts owed, the Factor can charge the bill through the Judicial Collection Process or request the payment to the Client if agreed in the factoring contract.
Get your legal advice from specialized lawyers at ERP Lawyers & Associates and check all the conditions surrounding the factoring process. Call us: (506) 2520-1122 or send an e-mail to eduardo@erplawyers.com
