Senate Moves to Boost MSME Financing Through Factoring Bill

•Law seeks to convert unpaid invoices into immediate cash flow for small businesses

Sunday Aborisade in Abuja

The Senate on Wednesday passed for second reading a bill seeking to establish a legal framework that would allow small and medium-sized enterprises (SMEs) to access faster financing by converting unpaid invoices into immediate cash.

The proposed legislation, titled Factoring Regulation Bill, 2024, was sponsored by Senator Asuquo Ekpenyong.

Ekpenyong said the law would provide lasting relief to millions of micro, small, and medium enterprises (MSMEs) struggling with delayed payments and cash-flow constraints.

Leading the debate, Ekpenyong explained that many Nigerian MSMEs faced delays of up to 90 days after delivering goods or services before receiving payment, a situation that often crippled their operations, limited their ability to pay workers, restock supplies, or expand their businesses.

Ekpenyong stated, “This cycle of weak cash flow not only traps small businesses but also slows down our economy’s overall growth.

“The bill represents a structural reform designed to unlock working capital for over 40 million MSMEs that form the backbone of Nigeria’s economy.”

The senator described factoring as a tested global financing tool that allowed businesses to sell verified invoices to licensed financial institutions at a small discount in exchange for immediate payment.

Unlike traditional bank loans, he said factoring depended on the buyer’s creditworthiness and the validity of the invoice, not on the borrower’s collateral.

Under the proposed law, the Securities and Exchange Commission (SEC) will regulate the practice, licensing eligible factoring companies and ensuring transparency through mandatory disclosure of costs and fees.

The bill also makes invoice transfers legally enforceable, aligning with ongoing digital reforms, such as e-invoicing and receivables registries, to reduce fraud and improve verification.

Ekpenyong said the framework would encourage large corporations and government agencies to adopt supplier-financing programmes that enable MSMEs to receive early payments at minimal cost.

He cited examples from countries like Mexico, India, Brazil, Chile, and South Africa, where similar initiatives had unlocked billions of dollars in working capital for small businesses and strengthened domestic supply chains.

He said, “With clear rules, Nigeria can attract over $1 billion annually through factoring to support production, create jobs, and boost investor confidence.

“This is not another short-term credit scheme; it’s a structural reform that converts invoices MSMEs already hold into usable capital.”

The bill also mandates regular reporting on transaction volumes, default trends, and MSME participation, while promoting financial literacy through standardised contracts written in plain language.

After the debate, the senate approved the bill for second reading and referred it to the Committee on Banking, Insurance, and Financial Institutions for further legislative action.