Among the financial tools used in our country, factoring in Costa Rica is not something new. This financial process has been in practice for several years and it's quite useful for companies that need to improve their liquidity with urgency to continue operating regularly. Factoring or invoice discounting is a process by which a company, by signing a contract and paying a commission and the corresponding interest rate, finances the total amount of the bills from another company or person, such as invoices, bills of exchange, promissory notes and other similar documents, and then it is responsible to collect them from the debtor once the notification (is an important step that cannot be ignored and that is fundamental to the legality of the process) of such assignment of bills is made. With this option of financing, it is possible to obtain a faster funding with different credit guidelines that can help both SMEs and big companies, converting these credit accounts into cash sales.
This funding mechanism is regulated by Costa Rican laws, specifically by the Commercial and Civil Codes and its suppliers can be any corporation or physical person with legal capacity. In Costa Rica, factoring is regulated by the figure of the assignment of receivables (article 460 and concordant of the Commercial Code). Now, we will proceed to deep on the regulations related to factoring.
Regulations in the Commercial Code
To start regarding the billing document, which is the basis of the process, according to Article 460 of the Commercial Code, "The bill is enforceable against the buyer for the amount overdrawn". "The amount established in the invoice, is presumed true and the signatures authentics." It is very important to emphasize that the bill becomes enforceable only if the buyer, his agent or his manager, when authorized in writing to sign on his behalf, signs it.
These bills will become enforceable, in accordance with Article 460 bis, and may be validly transmitted by endorsement (following the rules of the endorsement of securities according to Article 705 of the Commercial Code).
With regard to the transfer of non-endorsable credits, article 490 specifies that the process will "be subject to the rules set by Articles 1101 to 1116 of the Código Civil, if is not set otherwise in this Chapter." Then, in Article 491 of the Commercial Code, it is specified that the debtor must be notified, and the assignment will not be effective until this notification is made.
Such assignment of receivables shall be valid from its date and shall be exempted of any stamps or other taxes. In addition, the notary fees shall be established by agreement between the parties.
The debtor is not necessarily a passive entity in this transaction, as it can raise defenses that are not a result of the enforced title. Article 492 details the rules that must be followed to do so.. On the other hand, it is important to consider, according to Article 493, that: "Unless otherwise agreed, the assignor of a commercial credit responds only for the legitimacy of credit and or the personality by which he made the transfer, but it does not guarantee the solvency of the debtor."
In a future article, we will talk about the regulations listed in the Civil Code.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.