FESBC URGES BANKS TO ESTABLISH ‘FACTORING’ SERVICE
FESBC Vice President Hezekiel Mabuza

FESBC URGES BANKS TO ESTABLISH ‘FACTORING’ SERVICE

Factoring could bring relief to Micro, Small Medium Enterprises (MSMEs) when it comes to the management of accounts receivable, as it has numerous benefits. The Federation of Swazi Business Community (FEBC) implores banks to establish factoring services for MSMEs as they find it difficult to maintain a good cash flow position to meet their operational needs and their financial obligations in respect of servicing their loans as expected. Factoring is a form of financing that helps companies with cash flow problems due to slow-paying clients. It allows businesses to finance invoices, which improves company’s working capital. Speaking during the 2019 Post Budget Seminar, FESBC Vice President Hezekiel Mabuza said ‘factoring’ is an easy process to set up as it does not require a lot of documents to secure bank loans. “It gives one immediate access to cash,” he said. Presently none of the financial institutions in the kingdom of Eswatini offers such services, which FESBC believes, once established, will allow MSMEs to discount their invoices for immediate cash that currently takes up to 30 days to have them settled. It is said that the system could enable MSMEs to embark on any growth projects they may have. A ‘factor,
which is a bank in this case, acts as an intermediary agent that finances receivables. It also allows a business
to obtain immediate capital based on the future income attributed to a particular amount due on an account
receivable or business invoice. Accounts receivables function as a record of money customers owe for sales made on credit. ‘Factoring’ could also allow other interested parties to purchase the funds due at a discounted price in
exchange for providing cash up front. The ‘factor’ advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party. There are three parties directly involved in a transaction involving a factor: the factor, who purchases the receivable; the seller of the receivable; and the debtor, who must make a payment to the owner of the invoice. Additionally ‘factoring’ allows one to pay the bank the value of an invoice, less a discount for commission and fees.

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