Invoice financing restrictions to be lifted

Tuesday 11 August 2015

The Department of Business, Innovation and Skills (BIS) has announced that it will lift existing restrictions on finance obtained against invoices, in a bid to help contractors and other small businesses to succeed.

The decision has been made in response to a public consultation, “Invoice finance: nullifying the ban on invoice assignment contract clauses”, which concluded on February 11th.

At present, businesses can apply for financial assistance using invoices that have yet to be paid as security. This means that they are able to access funds more quickly than if they waiting for debtors to pay up.

This is one of several ways of dealing with the impact of late payments for small and micro businesses, and has been become increasingly popular as the alternative finance market has continued to grow.

The government has also recently put forward plans to create a Small Business Commissioner, who would tackle the problems of late payment alongside other issues. A Prompt Payment Code has also been suggested as a way of lightening the burden on freelancers and entrepreneurs.

However, invoice finance has remained an immediate and effective way for small companies to deal with the day-to-day challenges of late payments.

Anna Sowerby, the minister for small businesses, said: “Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs. 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 absolutely no excuse for late payment, I want small businesses to have the option of using it to increase their cashflow. This is all part of our plan to maintain the UK’s position as the best place in Europe to start and grow a business.”

According to figures from the Asset Based Finance Association, which regulates the invoice finance market across the country, over 44,000 businesses take out loans against invoices every year, to a total value of £19 billion.

However, the Federation for Small Businesses (FSB) also found that 38 per cent of businesses that applied for this type of financial assistance in the second quarter of of 2015 were refused.

The Asset Based Finance Association’s chief executive officer Jeff Longhurst said the move was evidence that “government has shown it is committed to addressing poor payment practices and getting a fairer deal for smaller businesses”.

This is believed to be due to a clause designed to prevent suppliers from subcontracting, but has the unintended effect of preventing invoice financing from being fully exploited. However, it is unclear precisely which types of contracts will be covered under the new regulations.

Larger companies often ban their contractors from assigning invoices to another party, which is presently the main cause of problems.
It is possible to make the changes to the rules on account of the 2015 Small Business, Enterprise and Employment Act.


By Victoria McDonnell

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