Businesses will be freed from restrictive contract clauses that prevent them from gaining invoice finance, when new measures come into force early next year.
The Department for Business, Innovation and Skills has announced this morning the ban on contract terms that some commercial customers apply to their suppliers through contracts.
Previously, they could use terms to bar a supplier from what’s called ‘invoice assignment’. This can raise the cost or even prevent the supplier’s access to invoice finance – which can often be a vital source of funding.
The government said the ban will open up more funding opportunities and benefit small businesses.
Invoice finance allows businesses to apply for funds using invoices for money owed to them as security.
This often allows them to get money faster than if they waited for customers’ payments.
More than 44,000 businesses receive over £19bn of funding this way at any one time, according to the Asset Based Finance Association (ABFA), which represents the UK invoice finance industry.
But the size of the market has previously been limited by clauses designed to prevent a supplier from sub-contracting work.
The government said these clauses have the unintentional consequence of blocking invoice finance arrangements and will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.
Small business minister Anna Soubry said: “By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.
“While invoice finance may not be right for everyone and is no excuse for late payment, I want small businesses to have the option of using it to increase cashflow.”
Jeff Longhurst, chief executive of ABFA, the trade body for invoice finance firms, said: “This is good news for UK businesses.
“Bans on assignment are often imposed by large companies on their smaller suppliers.
“With the work being done on late payment and now on ban on assignment, the government has shown it is committed to addressing poor payment practices and getting a fairer deal for smaller businesses.”
By Marcel LeGouais