Government to ban anti-invoice finance clauses from 2016

A ban on anti-invoice finance terms in contracts will come into force early next year.

  • this will help more small firms secure finance against money owed to them in invoices
  • easier access to finance will speed up economic growth and create jobs for people

Businesses will be freed from restrictive clauses in contracts that prevent them from gaining invoice finance when new measures come into force early next year. The move will open up more funding opportunities and specifically benefit small businesses.

Invoice finance allows businesses to apply for finance using invoices for money owed to them as security. This means that, in some instances, they can get money faster than if they waited for their customers to pay them.

More than 44,000 businesses receive over £19 billion of funding this way at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.

But the size of the market is limited by clauses designed to prevent a supplier from sub-contracting work.

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.

Brendan O’Brien, Managing Director of Breeze & Wyles Solicitors Limited said: “This change will have a dramatic impact on the way the smaller SMEs fund themselves.  the change can only have a positive impact  targeting benefits to the back bone of the UK economy.”

He added: ” It is possible that the stigma attached to the invoice factoring/discounting market could fall away and the market grow considerably as both the party factoring and the party to whom the invoice is addressed see this as the new normal for SME working capital funding. On the other hand it does not address the payment terms on invoices. Large businesses often use smaller ones as cash flow buffers with payment terms in excess of 90 days. This change will not assist those businesses who contract under these onerous terms. The Government needs to do more to address the payment terms issue to make it more difficult for payment terms to exceed 90 days.”

 

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