Factoring

Factoring is a service involving the purchase by a financial institution, called a Factor, of receivables due to exporters / suppliers (sellers) by their customers (buyers), with the Factor assuming full credit and collection responsibilities. In other words, Factoring is a financial transaction whereby an exporter/supplier sells its accounts receivable (i.e. invoices) to a third party (called a Factor) at a discount in exchange for immediate cash with which to finance continued business.

The Factor performs at least two of the following functions on behalf of the seller:

  • Credit protection;
  • Prepayment against accounts receivable;
  • Collection of factored debt; and
  • Credit management and sales ledger administration and analysis.

Afreximbank views factoring as an important tool for expanding and facilitating African trade and particularly for the extension of support to Small and Medium Enterprises (SMEs). This is because we believe that it will allow African businesses to trade more competitively through the use of open account and other modes of importation other than Letters of Credit.  Afreximbank is actively promoting intra-African trade and has identified factoring as one of the instruments to support SMEs who are integral to the supply chains and require Supply Chain Financing.

Afreximbank believe that Factoring will allow African businesses to trade more competitively through the use of open account and other modes of importation other than Letters of Credit. Therefore, the Bank has designed and implemented a strategy around 5 pillars (FLACS):

(1) Financial intervention;

(2) Legal and regulatory frameworks;

(3) Awareness and capacity building;

(4) Services; and

(5) Strategic partnerships.

Afreximbank is a member and also the current chair of the Africa Chapter of the Factors Chain International (FCI), which after the merger of IFG, is the world’s largest representative body for the factoring industry with over 400 members across 90 countries.

Afreximbank and the Africa Chapter have been working with FCI to enable African banks and factors to seize the opportunities factoring offers while at the same time mitigating the difficulties in the market.

The Africa Chapter is:

  • Facilitating the sharing of experiences between local members in Africa and reporting on such experiences to the worldwide FCI Members;
  • Advancing the best interests of African members and partners lobbying ministers, legislators, government officials and others whose decisions or advice may influence the success or otherwise of members’ and partners’ businesses;
  • Engaging in public relations activities designed to raise local awareness of the benefits of international factoring;
  • Developing the skills of FCI members on factoring in Africa through educational activities and staff exchanges;
  • Attracting new members, partners and sponsors; and
  • Offering networking opportunities for members, partners and sponsors through seminars, meetings and other functions.

The Africa Chapter leverages on FCI to:

  • Connect service providers with members and align with like-minded organizations to facilitate broader industry reach. They identify factors that will be open to entering into joint venture arrangements with Africa Chapter members to accelerate start-up operations;
  • Educate and provide training support in order to set standards and best practice in the industry; and
  • Influence and lobby on behalf of the industry to promote and defend the industry working closely with regulators and governments worldwide.
  • To learn more about FCI and their education programs, please visit fci.nl/en/education/index