By Bilesanmi Abayomi
The Nigerian Senate, on Thursday, passed for second reading a bill aimed at establishing a legal framework for debt factoring, a financing mechanism that could provide critical funding for small and medium-sized enterprises (SMEs).
The Factoring, Assignments and Receivables Financing Bill, 2024, sponsored by Senator Mukhail Adetokunbo Abiru (Lagos East), seeks to safeguard the interests of creditors and debtors, promote capital availability, and facilitate both domestic and international trade.
In his lead debate, Senator Abiru, Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, explained that the bill would create a structure where SMEs could transfer their unpaid invoices, known as receivables, to third-party financiers (factors) in exchange for immediate cash. This process, referred to as debt factoring, offers SMEs liquidity to fulfill supply orders without waiting for payment from larger corporations.
“This bill is crucial for helping SMEs get funding from banks and financial institutions when they receive large supply orders from bigger companies. These companies often delay payments, putting smaller businesses at risk,” Abiru stated.
Debt factoring, widely used globally, provides an alternative form of financing, particularly for SMEs that struggle to secure traditional bank loans. By selling their receivables at a discount to factors, SMEs can receive immediate cash flow to continue operations, while the factors take on the responsibility of collecting the debt.
Abiru emphasized the bill’s potential to close Nigeria’s trade financing gap, particularly for MSMEs, while integrating the country into the €2.6 trillion global factoring market. He also highlighted the Central Bank of Nigeria’s (CBN) recognition of debt factoring as an instrument to boost trade and exports, noting that the Nigerian Export Promotion Council (NEPC) and CBN have already begun supporting such activities.