American Journal of Economics, Finance and Management
Articles Information
American Journal of Economics, Finance and Management, Vol.1, No.5, Oct. 2015, Pub. Date: Aug. 3, 2015
Factoring as Financing Alternative: Reasons for Non Patronage in Nigeria
Pages: 503-509 Views: 2327 Downloads: 1418
Authors
[01] Alayemi S. A., Faculty of Business and Social Sciences, Department of Accounting, Adeleke University, Ede, Osun State, Nigeria.
[02] Oyeleye O. A., Faculty of Business and Social Sciences, Department of Accounting, Adeleke University, Ede, Osun State, Nigeria.
[03] Adeoye E. T., Faculty of Business and Social Sciences, Department of Accounting, Adeleke University, Ede, Osun State, Nigeria.
Abstract
This paper examined factoring as alternative source of finance and the reasons why it is not patronized in Nigeria. The objective of this paper was to explore factoring as a source of finance an alternative source of finance instead of bank loan with its attendant high interest rate. Factoring makes it possible for business to readily convert a substantial portion of its account receivable into cash. Factoring; the world all over has become a growing source of external finance for corporations and small and medium size enterprise. Depending on the participant, factoring may be domestic or international. There are two principal methods of factoring. Factoring can be with recourse where the client is not protected against the risk of bad debt. Hence, in the case of uncollectable debt, the client bears the loss. The other one is factoring without recourse. Under this scenario, the uncollectible debt is bore by the factor. However, factor should not be seen as debt collector. In the case of Nigeria, this method of finance is not patronized because of the state of the economic situation, incompetence of financial system in allocating financial resources and weak legal system which are features of emerging market. The determinants of the level of factoring activity in an economy depends on first, the availability of financial information about enterprises; and second, the overall level of economic activity. The reasons why factoring as an alternative source of finance is not embraced is simply because Nigeria is an emerging market where our financial system is not efficient coupled with the weak legal system. This is coupled with our political system that do not create an enabling atmosphere for smooth operation of financial institutions and Nigeria legal system.
Keywords
Factoring, Account Receivables, Factoring with Recourse, Factoring Without Recourse, Bad Debt, Emerging Market
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