By Victoria Ojeme

The Nigeria government through Nigerian Export Promotion Council (NEPC) has launched a foreign trade debt financing scheme that hopes to increase export volumes from the country.

The scheme known as “Factoring and Forfaiting” is a means of financing that enables exporters to receive immediate cash by selling their medium and long-term receivables—the amount an importer owes the exporter—at a discount through an intermediary.

Factoring involves a commercial bank or a specialized financial firm, who assists an exporter with financing through the purchase of invoices or accounts receivable.

A factor is essentially a funding source that agrees to pay the company the value of an invoice less a discount for commission and fees.

Export factoring is offered under an agreement between the factor and the exporter, in which the factor purchases the exporter’s short-term foreign accounts receivable for cash at a discount from the face value, normally without recourse, and assumes the risk on the ability of the foreign buyer to pay, and handles collections on the receivables.

So, by virtually eliminating the risk of nonpayment by foreign buyers, factoring allows the exporter to offer open accounts, improves liquidity position, and boosts competitiveness in the global marketplace.

The Executive Director of (NEPC) Mr Olusegun Awolowo who spoke at the 1st National Conference On Factoring and Forfaiting Services in Nigeria said factoring is one of the fastest growing instruments for structured trade finance in the world.

Speaking on the theme of the conference “Factoring as an alternative instrument for trade finance in Nigeria”, the Executive Director of NEPC said factoring in Nigeria could unlock over one billion dollars per year in financing for Micro, Small and Medium Enterprises (MSMEs).

He stated that the move was directed at solving most of the financial challenges witnessed by MSMEs with traditional banking such as excessive interest rate, credit profile constraints and insufficient collateral.

“As a result, factoring gives MSMEs, particularly those with high quality receivables access to cash flow and capital that will hrlp in maintain and grow their businesses and is a viable and long term solution to the problem of limited capital and availability that threatens the growth of Nigeria’s small and medium sized businesses” Mr Olusegun Awolowo added

Declaring the conference open, the Minister of Industry Trade and Investment, Otunba Adeniyi Adebayo said Factoring would contribute to the implementation of the National Economic Sustainability Plan and Export Expansion Facility Programme.

Otunba Adeniyi Adebayo who was represented by a Director in the Ministry, Ambassador Suleiman Adebayo stated that all stakeholders have a ride to play in making Factoring to be successful in Nigeria and called for a roadmap with actionable points and definite timeline to ensure a smooth operation of factoring and Forfaiting services in Nigeria.

He added that there was an urgency for the passage of Factoring Bill which is currently before the National Assembly.

The Minister equally solicited the cooperation of the Central Bank of Nigeria (CBN) to issue necessary guidelines within extant laws to ensure the smooth operation of Factoring.