Nigeria’s small businesses may be on the verge of a financing breakthrough. After years of delayed payments and weak cash flow, the Senate’s consideration of the Factoring Regulation Bill, 2024 signals a decisive move to modernise how MSMEs access working capital.

For many businesses, waiting up to 90 days to be paid has meant stalled growth, unpaid wages, and fragile supply chains. Factoring offers a direct response to this long-standing problem by turning unpaid invoices into immediate cash.

Why Factoring Changes the Game

Factoring allows businesses to sell verified invoices to licensed financial institutions at a discount and receive cash upfront. Unlike traditional loans, it does not depend on collateral or the SME’s credit history but on the ability of the buyer to pay.

This shift makes factoring especially powerful for MSMEs that are productive, supply large organisations, and yet remain locked out of bank credit.

A New Rulebook for the Market

The proposed law provides the missing structure that has held factoring back in Nigeria. Oversight by the Securities and Exchange Commission, legally enforceable invoice transfers, and mandatory disclosure of fees are designed to create trust, transparency and scale.

By aligning with digital reforms such as e-invoicing and receivables registries, the framework also strengthens verification and reduces fraud—critical foundations for a functioning factoring market.

Risk, Pricing and the Role of Credit Ratings

A factoring revolution cannot succeed without credible risk assessment. Credit rating agencies are positioned to play a central role by independently evaluating the creditworthiness of invoice debtors.

Their assessments support accurate pricing of invoices, help factoring companies manage default risk, and reduce information gaps across the market. This common language of credit risk is essential for attracting institutional investors and expanding factoring beyond small, informal transactions.

Closing Nigeria’s Factoring Gap

Globally, factoring is one of the fastest-growing trade finance tools, yet Africa accounts for less than one per cent of global volumes. South Africa dominates the continent, while Nigeria’s market has remained largely informal due to weak regulation, limited credit insurance, and infrastructure gaps.

The new framework aims to reverse this trend and position Nigeria as a serious participant in receivables-based finance.

More Than Credit—A Structural Shift

Supporters of the bill estimate that a regulated factoring market could unlock over $1 billion annually in working capital, strengthen supply chains, and support MSME participation in regional trade.

More importantly, factoring represents a structural reform, not a temporary credit scheme. By converting invoices MSMEs already hold into usable capital, Nigeria is laying the groundwork for a more resilient, inclusive and growth-driven economy.

If passed and effectively implemented, the Factoring Regulation Bill could mark the beginning of a true factoring finance revolution in Nigeria.