The quick passage of a law on factoring in Nigeria is a crucial step in facilitating the ease of doing business and procuring the trust of investors in the country, guests heard recently during a public hearing held at the National Assembly in Abuja.
Speaking during the Public Hearing on the Factoring bill, Jones Onyereri – Chairman of the House of Representatives Banking and Currency Committee, said that the introduction of factoring in the financial sector will serve as complementary financing to conventional financing and will largely target micro, small and medium enterprises (MSMEs).
“This will facilitate the provision of cash flows to MSMES, especially those that have quality receivables and may not be in the position to obtain adequate conventional bank finance due to high interest rate, collateral or credit profile constraints,” continued Mr. Onyereri.
Kanayo Awani, Managing Director of the Intra-African Trade Initiative at the African Export-Import Bank (Afreximbank), highlighted the importance of factoring in unlocking the economic potential of SMEs, noting that it could play a key role by supporting the SMEs – promoting open accounts, which is beneficial to SMEs in enhancing their competitiveness, and providing an alternative source of trade access to finance.
She said that Afreximbank is committed to supporting the appropriate legal and regulatory environment as a key strategic initiative for the promotion and development of factoring, noting that under its strategy, the Bank was required to work on improving the legal environment in order to bring about harmonised standards and transparency within the factoring industry in Africa, and providing for legal enforcement arrangements.
The public hearing, which was organised in collaboration with Afreximbank, also attracted the participation of representatives from the House of Representatives Banking and Currency Committee, NEXIM, FCI, the Central Bank of Nigeria, the Debt Management Office, the Nigeria Deposit Insurance Corporation, the Financial System Strategy 2020, and several other stakeholders.
Factoring is a service involving the purchase by a financial institution, called a Factor, of receivables due to exporters/suppliers (sellers) by their customers (buyers), with the Factor assuming full credit and collection responsibilities.
In other words, Factoring is a financial transaction whereby an exporter/supplier sells its accounts receivable (i.e. invoices) to a third party (called a Factor) at a discount in exchange for immediate cash with which to finance continued business.
The Factor performs at least two of the following functions on behalf of the seller: Credit Protection, Prepayment against accounts receivable, Collection of factored debt, and Credit management and sales ledger administration and analysis.