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Factoring Contracts

05/08/2016

Factoring contracts, whereby one party assigns its invoices, credits or receivables to a third party or factor in consideration of legal currency, are a common source of short-term financing in Panama.

The activity of offering factoring services in Panama is not regulated and can be carried out by private companies that comply with the minimum license requirements businesses in Panama.

Banks in Panama also offer factoring services to their clients, but supervised by the Bank Superintendence of Panama.

Factoring contracts are atypical or innominate contracts in Panama that have as their legal basis the general rules of contracts.

Unless otherwise agreed to by the parties to the factoring contract, the assignor of a commercial credit will respond only as to the legitimacy of the credit and the manner in which the assignment was made.

The above rule has been consistently upheld by our courts that have established that the assignor of the credit does not respond for the insolvency of the debtor.

Recently, by means of Law No. 129 of 2013 regarding access to credit and other matters, factoring contracts were included in this law in an express manner with the intent of promoting even more access to credit in Panama in an expeditious manner.

Article 23 of Law No. 129 of  2013 states in part that factoring contracts can be with or without recourse. If the factoring is with recourse the factor would be entitled to go against the assets of the assignor in case of non-compliance by the debtor.

If the factoring is without recourse the factor would not be entitled to go against the assets of the assignor in case of non-compliance by the debtor. In this case the factor could only go after the assets of the debtor to satisfy its claim.

Due to the above and other matters, during the past decade the business activity of factoring has grown exponentially, making this a common source of short-term financing in Panama.

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