BIS scraps blocks on SME access to invoice finance

THE DEPARTMENT for Business, Innovation and Skills (BIS) is to ban contractual clauses used by bigger businesses to prevent their SME suppliers from accessing funding through invoice finance.

Small Business minister Anna Soubry announced that ‘bans on assignment’, often forced on smaller supplier businesses by larger customer outfits, will be made illegal.

Such clauses have the unintentional consequence of blocking invoice finance arrangements and once nullified, will still retain a customer’s right to prevent traditional sub-contracting arrangements.

Soubry 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.

The move is the latest bid by the government to tackle the deeply entrenched problem of Britain’s late payments culture, whereby big firms – often as a matter of routine – hold back the timely payment of bills denying small businesses from vital cash lifelines.

Accdording to a recent survey, the average SME is owed £40,857 in unpaid invoices, a survey by Tungsten Corporation revealed, with £20,937 of that total overdue

Now, from early 2016, small companies will be empowered wit to raise funds by borrowing against unpaid invoices from big business customers from early next year.

The ban on invoice assignment is frequently part of a more general ban on an assignment clause in the contract to stop a supplier from sub-contracting, resulting in a business’ access to invoice finance often being unintentionally restricted.

The Asset Based Finance Association (ABFA), which represents the industry, says in the UK some £9bn in finance is borrowed against the value of SME invoices, and £18.9bn overall in asset based finance to businesses.

Jeff Longhurst, ABFA’s chief executive, said: “We welcome the Government’s commitment to addressing poor payment practices and getting a fairer deal for Britain’s small businesses. With the government’s focus on reducing waits for payment and now outlawing bans on assignment, it’s clear that there is a real move to level the playing field for SMEs.

“As unpaid invoices represent one of the biggest assets most SMEs have, these clauses have the effect of choking off a vital source of funding. For them to be outlawed is good news for small businesses in a difficult economic environment. We look forward to seeing the final detailed regulations to ensure that they are effective in allowing SMEs to access the finance they need through their unpaid invoices.”