April 17, 2020
IS DEBT FACTORING A SOLUTION TO CREDIT IN THE FACE OF COVID 19 PANDEMIC – FELIX AYEM (ASSOCIATE)
The entire world has been greeted with a rude health shock occasioned by the outbreak of the coronavirus (COVID-19) pandemic which started in Wuhan China in November 2019 with increasing number of infections across the globe on a daily basis. This has brought all aspects of human endeavors to a standstill, resulting to a near total collapse of economic, social and to some extent, political activities. According to the International Monetary Fund (IMF), the coronavirus pandemic will turn global economic growth “sharply negative” in 2020, triggering the worst fall-out since the 1930s Great Depression, with only a partial recovery seen in 20211 . In Nigeria, the Minister for Finance, Budget and Planning, Mrs. Zainab Ahmed earlier warned that if the coronavirus pandemic continues for the next couple of months, Nigeria will definitely go into another recession. There is no gain saying the fact that COVID-19 has become a major concern to businesses and governments across the world. In view of the apparent complex and hazardous economic situation, it is necessary for businesses and most especially those in the financial sector to look inward for possible solutions to cushion the negative effects of the pandemic on businesses and the ability of debtors to meet their debt obligations to creditors. One of the veritable ways of managing credit at this critical stage of dwindling economic activities in the face of COVID-19 is by way of “Debt Factoring”.
What is debt factoring?
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring could be in the form of accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing.
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