Entrepreneurs in the finance sector and academics are preparing a proposal to regulate by law invoice discounting, an activity which keeps on growing.
The wording of this proposal has gained importance in recent days as the Legal Affairs Committee of the Legislature began a study of a factoring project dating from 2002.
In this regard Pedro Chaves, director of the Department of Commercial Law at the University of Costa Rica, told Nacion.com that “’All of it will have to be changed, that project is ten years old. The concept to factoring was completely different then. We can not start with such outdated legislation."
The U.S. company Factor Brokers is offering to pay 80% of the bill when the goods are delivered, and the remaining 20% when the buyer completes payment.
Charles Harding, a representative of the Office of Business Development for Latin America and the United States said that this novel service is international factoring.
"Currently we have a very large portfolio in the area of perishable goods and one of the services that we offer is credit insurance, payment and risk" said the executive to Elnuevodiario.com.ni.
The new law will help raise funds primarily for small and medium enterprises.
"The text of the law refers to the currency bill as “a negotiable security, which will serve as legal support when transactions are issued between employers and a financial institution, if the purpose is to raise funds", published Laprensa.com.ni.
The president of the Chamber of Commerce and the Nicaraguan Council of Micro, Small and Medium Enterprises (Conimypime), an organization which demanded this law, said the new law favors the industry and once in place, it will facilitate the mobilization of about $ 50 million a year.
The proposal has already been favorably reviewed by the Economic Committee of the National Assembly and its approval is expected next week.
The law would make exchangeable invoices a legal proof of transactions, where they are issued between financial institutions and businesses seeking to acquire funds, particularly micro, small and medium sized enterprises (MSMEs).
Through an agreement with the IDB's Multilateral Investment Fund (Fomin), the company Credifactor will offer factoring (selling invoices at a discount) services to small and medium sized enterprises.
The total cost of the project is approximately two million dollars, which will enable Credifactor to develop its capabilities, carry out training and expand its services across Nicaragua.
The factoring industry in Panama (selling invoices at a discount) has grown to $100 million a year.
When the time lapse between credit sale and collection is longer than what the creditor can usually afford, factoring becomes a good option to have cash at hand to sustain day-to-day operations.
The margin earned by companies providing this service, known as the discount, is not regulated in Panama, and has been continually growing since the inception of these services in the country in the 80s.