CBN halts processing of Form M for purchases made through third-party agents

CBN halts processing of Form M for purchases made through third party agents

The Central Bank of Nigeria (CBN) has directed Authorised Dealers to cease the opening of Form Ms whose payments are routed through buying companies/agents or any other third party. Additionally, the CBN has introduced a product price verification mechanism, which Authorised Dealers have been directed to use in verifying quoted prices before Form Ms are opened. “Form M” is a statutory document to be completed by all importers for the importation of goods into Nigeria.

In the directive issued by the CBN on 24 August 2020, Authorised Dealers are only allowed to open Form Ms for Letters of Credit, Bills for Collection and other forms of payment in favour of the ultimate supplier of the product and after price verification, using the product price verification mechanism, effective immediately.

The CBN introduced this measure to ensure prudent use of foreign exchange, as well as to eliminate incidences of over-invoicing, mispricing, excessive handling charges and avoidable costs. By this measure, the CBN has effectively altered the operating models of many businesses, who rely on buying companies to optimise their supply chain.

Buying companies are used by many businesses for:

  • Product Sourcing: as they offer tailored services, based on an understanding of product specification, quality requirements and the appropriate original equipment manufacturers (OEMs).
  • Product Pricing: they get special discounts from the OEMs, based on previous and/or future business arrangement(s).
  • Logistics: sometimes, they take responsibility for the logistics required to ship the products at the right time while using the most appropriate medium.

The CBN measure, if not recalibrated to avoid the use of a one-size-fits-all approach, will mean that certain businesses who operate more efficiently using buying companies could become less competitive in the market and struggle in  an already challenging economic landscape.

While we expect a dialogue with the CBN where there are legitimate claims for using buying companies, affected businesses will in the interim need to recalibrate their supply chains to ensure the disruptions caused by the new measure are effectively managed.

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