Given Brazil’s highly bureaucratic nature, an entrepreneur who decides to handle contracts and client relationships—along with managing tax, banking, and labor operations—without the assistance and partnership of a specialized legal department is doomed to fail.​

This is because Brazil is one of the most legally challenging countries in the world to run a business, necessitating that the legal department acts as a facilitator of operations.​

A prime example of this is the relationship between companies and banks—which often results in an exorbitant incidence of interest in the development of business activities.​

The outcome, in most cases, is the cessation of company operations due to the unsolvable accumulation of debt. Typically, in Banking Law, we see entrepreneurs approaching lawyers already with their “backs against the wall,” seeking judicial recovery.​

Considering the operation of a small to medium-sized company in the country—a machining company, for instance—it has an average profitability of 3% to 10%. The actual receipt of the amounts invoiced by this company takes two to three months to arrive in its account. However, during this same period, production needs to continue, as well as the payment of employees and additional costs that may arise.​

The problem arises when this revolving amount, known as cash flow, comes from banks, which provide the necessary funds through loan contracts, receivables anticipation, or general discounts, allowing the company to continue its operations—with the addition of remunerative interest and all sorts of fees.​

Thus, when the revenue is received, it goes directly to the bank, gradually causing the profit from the business operation to be lost to the financial institution.​

The fact is that this is only noticed when the manager discovers they are going through an actual crisis, no longer knowing how to pay their operational costs, as banks, upon conducting new risk analyses, decide to stop the anticipations or reduce the companies’ credit limits.​

At this point, instead of turning to relationship managers to make agreements with long maturities and very high rates, the best alternative for entrepreneurs would be to improve their business’s financial operations and initiate an effective business recovery process. We are not necessarily referring to judicial and extrajudicial recoveries, but a specific and directed work for each financial institution with which the company has a relationship.​

Thus, considering numerous inconsistencies practiced by financial institutions in managing their clients’ bank accounts, it is possible to enable the recovery of improperly paid credits and develop debt renegotiations in accounts that can truly be honored, so that the company’s financial health is restored and operations are stabilized.​

In case of doubts, send an email to: felipe@gcbaadvogados.com.br