Factoring Agreement (Nigeria)

A Factoring Agreement in Nigeria sets out the rights, duties and consideration binding the parties to it.

Factoring in Nigeria is regulated by the Central Bank of Nigeria (CBN) under the Banks and Other Financial Institutions Act 2020 (BOFIA 2020) and the CBN Finance Company Regulations, which license and supervise non-bank finance companies engaged in factoring. The Nigerian Factoring Association (NIFA) represents the industry. The legal mechanism for assigning receivables is provided by the common law of assignment — equitable assignment (which requires the debtor to be notified to become effective at law) — supplemented by the Secured Transactions in Movable Assets Act 2017 and the National Collateral Registry (NCR) for security interest registration.

For company sellers, the Companies and Allied Matters Act 2020 (CAMA 2020, Part X) governs whether the factoring arrangement constitutes a registrable charge on book debts at the Corporate Affairs Commission (CAC). The Federal High Court and state High Courts have addressed the true sale versus secured lending characterisation of factoring arrangements in cases involving insolvent company sellers.

Nigerian companies in sectors with long debtor payment cycles — construction, government contracting, oil and gas services, and FMCG supply chains — use factoring extensively to manage working capital gaps created by the gap between invoice date and debtor payment, which in Nigeria's public sector can extend to 90, 180, or 360 days.

The legal framework governing the Factoring Agreement (Nigeria) in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Factoring Agreement (Nigeria) in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Contract Law (received English common law) sets the foundational requirements.

A Nigeria Factoring Agreement is needed whenever a business wants to accelerate cash flow by selling its outstanding invoices to a factor and needs a formal written contract establishing the terms of the receivables purchase.

When a Nigerian SME supplies goods or services to a large Nigerian company or government agency and faces a 60 to 180 day payment cycle that creates cash flow pressure, factoring the outstanding invoices through a CBN-licensed finance company provides immediate working capital without the need for a bank loan or overdraft facility.

When a contractor or supplier to Nigeria's federal, state, or local government — where invoice-to-payment cycles frequently exceed 90 days due to government treasury procedures — factors the outstanding receivables, the factor assumes the collection risk while the contractor receives immediate cash to fund the next contract cycle.

When a Nigerian exporter sells goods to foreign buyers with extended credit terms (60 to 120 days), export factoring through a NIFA-member factor enables the exporter to receive immediate NGN proceeds against the foreign currency receivable, with the factor managing the cross-border collection and FX risk in accordance with CBN foreign exchange regulations.

When a fast-growing Nigerian business needs to expand its operations but lacks the collateral for a traditional bank term loan, factoring its debtor book — which is a self-liquidating asset — provides off-balance-sheet financing that grows proportionately with the business's sales volume.

Parties in Nigeria should prepare a Factoring Agreement (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A properly drafted Nigeria Factoring Agreement must contain the following elements.

Parties: Full legal names, CAC registration numbers, and addresses of the seller (client) and the factor. The factor's CBN licence number should be confirmed where it is a regulated finance company.

Assignment of receivables: A clear statement that the seller assigns (by way of sale or by way of security, specifying which) its trade receivables — both existing and future — to the factor, subject to any agreed eligibility criteria (e.g., minimum invoice value, maximum debtor concentration, debtor creditworthiness requirements).

Advance rate: The percentage of each invoice's face value that the factor will advance immediately upon assignment — typically 70% to 90% for Nigerian factoring transactions.

Factoring fee: The factor's fee for providing the service, typically expressed as a percentage of invoice value per month or as a flat rate, plus any administration fee. VAT at 7.5% on the factoring fee under the VAT Act Cap V1 LFN 2004 should be addressed.

Recourse structure: Whether the factoring is with recourse (seller bears debtor credit risk) or without recourse (factor bears the risk of debtor insolvency), and the mechanism for exercising recourse.

Debtor notification: Whether the factoring is disclosed (debtor is notified to pay the factor directly) or undisclosed (debtor pays the seller, who remits to the factor). Most Nigerian factoring is disclosed.

National Collateral Registry (NCR) registration: The factor's right to register its interest in the assigned receivables at the NCR under the Secured Transactions in Movable Assets Act 2017, and the seller's cooperation obligations.

CAC charge registration: Provisions addressing whether the assignment constitutes a registrable charge under Part X of CAMA 2020 and which party is responsible for filing.

Representations and warranties: The seller's warranties that the assigned receivables are valid, unencumbered, and not subject to set-off or disputes.

Termination: Conditions under which either party may terminate the factoring facility, and the treatment of outstanding assigned receivables on termination.

Additional compliance elements for a Factoring Agreement (Nigeria) used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.