Regulatory Lag Leaves SME Funding Gap Unresolved as Receivables Market Surges

South Africa’s receivables finance market has more than doubled in size since 2018, yet the regulatory and legal architecture governing it has not kept pace, leaving small and medium-sized enterprises largely shut out of a mechanism designed to solve their most persistent funding problem.

The market, in which businesses convert unpaid customer invoices into immediate cash, grew from 22.17 billion euros (364.68 billion rand) in 2018 to 42.62 billion euros (828.88 billion rand) in 2025, according to FCI, the global body for factoring and financing. That expansion has primarily served large corporate-to-corporate transactions. SMEs, facing a documented funding gap of 350 billion rand, have seen little of it.

The Centre of Excellence in Financial Services released a comprehensive report, “Building a modern receivables finance ecosystem in South Africa,” that identifies specific governance and regulatory shortcomings constraining SME access to receivables finance. The analysis frames the problem as one of institutional design, not market appetite.

Mark Brits, executive director of the Centre of Excellence in Financial Services, put it plainly. “Receivables finance is underutilised in South Africa, with an SME funding gap estimated at R350 billion, and by learning from the best international practices adopted in other jurisdictions, we should be able to support our economy by simplifying access to finance,” he said. The mechanism itself is straightforward: a business sells its invoices to a financier, converts a receivable into cash, and avoids the cash conversion cycle problem without incurring costs. As Brits noted, “In the absence of a contractually enforceable payment period, at no cost to the SME, receivables finance may be the only practical approach to resolving the cash conversion cycle for SMEs.”

What changed, the report argues, is that the market outgrew its legal foundations.

The report’s most significant recommendation is a dedicated Receivables Finance Act, aligned with international standards including the EU Assignment of Claims Directive, the US UCC Article 9, and UNCITRAL standards. Such legislation would establish explicit legal authority for the assignment of receivables, including public-sector invoices, while embedding protections for buyers and clarifying rules around notice, priority, dispute resolution, and claims dilution. Without that statutory clarity, financiers and SMEs alike operate in a legal environment that discourages participation.

Regulatory enhancement through the South African Reserve Bank forms a second pillar of the report’s recommendations. Specifically, the report calls for expanding the BA900, a monthly regulatory return mandated by SARB that collects institutional and maturity breakdowns of assets and liabilities from all registered domestic banking institutions. An expanded BA900 would improve regulatory visibility of SME exposures, receivables portfolio segmentation, payment-behaviour trends, and asset-quality metrics including disputes and invoice dilutions. Better data, in other words, would give the Reserve Bank the oversight tools it currently lacks.

The governance framework must also confront private contractual practices that block the market from functioning. Many corporate buyers currently employ blanket anti-cession clauses prohibiting parties from transferring or ceding rights without consent. The report recommends shifting toward managed, conditional assignment provisions supported by registry verification, standard dispute notification processes, and confidentiality safeguards. These clauses, left unreformed, effectively nullify the legal right to assign receivables even where statute permits it.

Operational modernisation represents a third dimension. Banks and financiers should standardise cession processes, notice procedures, and dispute-management protocols in line with international norms. Digitisation and automation would reduce onboarding friction for SMEs and improve efficiency across the system. A centralised, digital receivables and security-interest registry emerges from the report as critical infrastructure, one that fintechs and technology providers should build systems to integrate with fully.

The report also assigns responsibilities to SMEs and their representative associations. SMEs should conduct contract reviews to identify anti-cession clauses and implement basic governance processes to prevent errors and unintentional multiple financing. Industry associations should convene stakeholders, harmonise practices, and develop sector-wide guidelines covering assignment notices, dispute processes, documentation standards, and supplier onboarding.

South Africa possesses the underlying conditions for a functioning market: strong financial institutions, a robust legal system, and sophisticated supply chains. The question the report leaves open is whether the legislative and regulatory reforms it recommends will be taken up, and by whom, before the funding gap widens further.