Nigerian Senate don pass one bill for second reading wey aim to create legal framework for transactions between big corporations and Micro, Small, and Medium Enterprises (MSMEs). The bill, wey dem call Factoring Assignments and Receivables Financing Bill 2023, dey designed to promote transparency, certainty, and adequate protection for both creditors and debtors.
Senator Tokunbo Abiru, Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, be the one wey sponsor the bill. According to Abiru, the bill go provide mechanism whereby contractual rights to payment from a debtor can be transferred to a third party, referred to as the ‘factor’.
Abiru explain say the bill go help MSMEs secure funding from banks and financial institutions for supply orders received from large corporations. He say small businesses often transact with large firms like Nestlé, Cadbury, and others on credit terms, but these large companies can leverage their financial strength to delay payments.
The concept of debt factoring, according to Abiru, be the sale of receivables (debt) by one entity (the ‘Seller’) due from another party (the ‘Debtor’) to a third party (the ‘Factor’ or ‘Purchaser’) at a discounted price for immediate cash. This mechanism dey widely used globally and offer flexible means of providing working capital to suppliers of goods and services.
Abiru point out say debt factoring be critical tool for improving cash flow and credit management, enhancing a company’s competitiveness in the global market. In Nigeria, both the Central Bank of Nigeria and the Nigerian Export Promotion Council recognise debt factoring as permissible financial activity.
The passage of this bill go create regulatory framework that facilitates the development of debt factoring as alternative means of financing for domestic and international trade in Nigeria. Abiru say despite global prominence of factoring, Nigeria yet to fully tap into this financing mechanism.
