Senate move to legalise trade agreements between big firms, SMEs

The Senate Thursday passed for second reading, a bill seeking for an act to create legal framework for any transaction involving large corporations and the Small and Medium scale Enterprises (SMEs)

Proposed legislation specifically intends to create certainty, transparency, and adequate protection for the interests of creditors and debtors in order to promote the availability of capital and credit.

The bill titled : “;Factoring Assignments and Receivables Financing Bill 2023 “, was sponsored by the Chairman, Senate Committee on Banking, Insurance and other Financial Institutions, Senator Tokunbo Abiru ( APC Lagos East).

Senator Abiru in his lead debate on the bill, said it seeks to create an avenue where interest of contractual rights to payment of a monetary sum by a debtor is transferred by agreement to a third party called the factor.

“It is a service involving a financial transaction receivables (i.e invoices) to a third party called the factor, with the factor assuming full credit and collection of responsibilities”, he said.

He added that the bill would assist SMEs to get funding from banks and financial institutions, for supply orders already obtained from big corporations on trust.

All the Senators who contributed to debate on the bill, supported it for second reading.

Speaking with journalists after the bill was passed for second reading, Abiru said it was necessary to have a formal structure whereby we can help most of our micro, small and medium enterprises.

“What happens is that small businesses do a lot of business transactions with the big companies like Nestle, Cadbury, and others.

“The big companies, because of their strength will buy goods or trade from the smaller companies typically on a credit basis and they won’t pay cash because of the financial muzzle they have.

“This new means of financing is referred to as debt factoring. Debt factoring is, simply put, the sale of receivables (debt) by one entity (the “Seller”) due from another party (the “Debtor”) to a third party (related or unrelated) (known as the “Factor” or “Purchaser”) at a discounted price for immediate cash”, he said .