About Biashara Factors

 

Biashara Factors Ltd. is a limited liability company incorporated under companies Act Cap 486 laws of Kenya as a commercial, sustainable stand-alone factoring house. BFL operated as a department under Kenya Gatsby Trust which is a non-profit making NGO working with MSEs in Kenya with a view to improving their business for sustainable wealth creation and livelihood improvement. Over the last 5 years, BFL has worked with producers either individually, organized in groups or through traders covering crafts, manufacturing and agro based enterprises, spread all over the country, working in partnership with private sector.

Factoring Facility

BFL’s factoring facility endeavors to address the above constraint in order for SME’s to take advantage of market opportunities accessible through mass marketing channels. This factoring service or short term and flexible financing is an arrangement where BFL as a financial institution or Factoring house pays cash to MSE’s/Networking Agent against accepted deliveries and/or deliveries to reputable and credit – worthy customers whose purchasing practices include credit periods that MSC’s cannot sustain. Players in mainstream markets e.g. supermarkets, industrial and institutional customers among others have established purchasing practices that include credit periods of 30,60 or 90 days which MSE’s consistently fail to sustain and consequently lose the market and significantly undermine the enterprise ability to function profitably.

How does it work?

Many new and growing business and in particular smallholder farmers have trouble accessing credit from banks due to varied reasons including collateral and credit history which many MSC’s lack particularly women folk. Factoring allows the supplier to convert accounts receivable (approved invoices and delivery documents) into instant cash by selling them to the factor at an agreed fee and the factor then waits for the normal 30, 60 or 90 days for the invoices to be paid. On the due date the customer pays the Factoring house the full amount of the invoice(s) as per the agreement entered between the parties. Many MSE’s cannot afford to serve many customers who pay their invoice much beyond thirty days. Quite often, MSE’s are forced to turn down some of their more profitable orders because of slow-paying customers. Thus, factoring is an alternative financing in the following ways: 1)Give MSEs the option of converting receivable into cash a head of due dates, thus availing funds for labor and materials prior to the completion of Contract or order. The MSE is able to take advantage of cash discount and purchase. 2)Assists enterprises to reduce expenses related to credit and debt collection and since the fee is based on the based on the entrepreneur’s sale volume, expenses can therefore be easily projected. 3)Assist MSEs gain control over cash flow because payment of invoices purchased by the factor is contractually guaranteed and is made on a scheduled basis. 4) Remove uncertainty regarding cash flow and the MSE can sell his/her products more aggressively since funds are available when orders are raised.

Does it Cost to Factor?

Factoring costs vary from enterprise to enterprise and client to client. It is determined by a combination of the customer base creditworthiness and performance of the receivables. The fees can be very low depending on the level of risks involoved in the business transaction and the volumes.

 

Who qualifies

An MSE/Networking Agent will qualify for the factoring facility on the basis of the following:

  • If it has strong backward linkages to MSEs or smallholder farmers.
  • If it has a credit worthy customer but lacks financial track record required by commercial financial institutions.
  • If it is doing well and requires more cash flow to take advantage of new sales and profit opportunities.
  • If it is growing rapidly and requires capital to fill orders or services, but has its money tied up in accounts receivables.
  • If it is positioned to increase the current volume of business but do not want to incur any debt or increase overhead/expenses.