The Senate has passed for second reading a Bill seeking to create a legal framework that enables small and medium-sized enterprises (SMEs) to access quick financing by converting unpaid invoices into immediate cash.
The proposed legislation, titled Factoring Regulation Bill, 2024, was sponsored by Senator Asuquo Ekpenyong, who said the measure is designed to address one of the biggest challenges facing Nigerian small businesses — delayed payments.
According to Ekpenyong, many SMEs deliver goods or services and then wait up to 90 days to receive payment, a delay that disrupts cash flow, limits operations, and stifles growth.
The Bill proposes factoring as a solution — a financing mechanism that allows businesses to sell verified invoices to licensed finance companies or banks at a small discount in exchange for immediate cash.
Unlike traditional bank loans that rely on collateral, factoring is based on the buyer's creditworthiness and the validity of the invoice, enabling SMEs to access working capital based on sales rather than fixed assets.
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Ekpenyong explained that the Bill places regulatory oversight under the Securities and Exchange Commission (SEC), ensuring only licensed entities can engage in factoring, while requiring full disclosure of costs and fees to protect businesses. It also makes invoice transfers legally enforceable, aligning with digital reforms such as e-invoicing and receivables registries to curb fraud and improve transparency.
He added that the framework would encourage large corporations and government agencies to adopt supplier-financing programmes that allow MSMEs to receive early payments at lower costs.
Citing global examples from Mexico, India, Chile, Brazil, and South Africa, Ekpenyong noted that similar reforms had unlocked billions of dollars in working capital for small businesses, boosting productivity and employment.
The Bill, first introduced on June 11, 2024, also mandates regular reporting on transaction volumes and MSME participation, while promoting financial literacy through simplified contracts and standard term sheets.
It has been referred to the Senate Committee on Banking, Insurance and Financial Institutions for further consideration and is expected to be reported back in four weeks.
