Many industrial installations in developing countries start-up as small factories, without regard for the need of compensation of reactive power, leading to significant financial losses in the long term. By improving the power factor, the customer can reduce its power demand and potentially increase efficiency of their equipment. A PIC microcontroller is used to switch capacitor banks to compensate for the reactive power. In order to determine the size of the capacitor bank needed, the microcontroller calculates the phase difference between the voltage and the current. The results obtained based on the lagging power factor for three test loads show an improvement in the power factor from 0.52 to 0.96 under different test load conditions.