Commercial Bank of Africa (CBA) in partnership with the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF) and Ennovative Capital (ECap) have launched a solution that will see suppliers of their corporate clients, receive payment for goods and services offered, without having to wait for the stipulated credit period.
The solution is known as Reverse Factoring or Supply Chain Financing. It is different from the invoice discounting facility currently offered by banks to suppliers in that it will be extended to corporate customers as long as they have a good credit standing with CBA. In this case it is the suppliers of the corporate clients who stand to benefit.
The solution will work by having corporate buyers approve and submit their supplier invoices to CBA through an online platform. Thereafter, the bank facilitates immediate payments to suppliers with recourse to the corporate buyers. This ensures that suppliers are able to access their payments before the due date.
According to Jeremy Ngunze, Chief Executive Officer, CBA Kenya, the solution is expected to spur growth Small and Medium Enterprises (SME) by availing working capital faster to enable them finance new projects. I have to say this solution will work well for SME’s as delayed payments have caused the death of many viable businesses.
Other than improving SME operations, Reverse Factoring also reduces the administrative burden placed on procurement and finance teams. Ordinarily, they have to deal with each of the individual suppliers on a regular basis. This responsibility has now been extended to CBA, which will manage all the payments on behalf of the corporate institutions