SMEs will get guarantees on access to invoice financing
This decision aims to facilitate small businesses’ access to finance and is part of the government’s industrial strategy.
Currently, a small supplier’s contract with a large company may prevent them from obtaining invoice financing from suppliers such as banks and other investors.
Under the proposed new laws, any such contractual restrictions entered into after December 31, 2018, with few exceptions, would have no effect and could be ignored by small businesses and financing providers.
Invoice financing allows a company to raise funds by assigning its right to be paid (known as “receivables”) to a financing provider in exchange for funds, typically 80% of the invoice value. The initial deposit is received within a few days and the balance of 20% (less fees and charges) is paid when the customer pays the invoice. Invoice financing is not borrowing, because the supplier receives an advance against a future payment. Some purchase contracts include clauses that prohibit assignment, which prevents (or inhibits) access to invoice financing. Suppliers sometimes accept these contracts because of their weak bargaining position. It is these contractual clauses that the regulations will deal with.
The regulation would apply to SME suppliers and contain exceptions for certain types of contracts, such as financial services contracts, consumer contracts and contracts related to the sale of a business.
The legal changes are set out in the draft Terms of Commercial Contracts (Assignment of Claims) Regulations 2018.
Small Business Minister Kelly Tolhurst said: “The UK’s 5.7 million small businesses are the backbone of our economy and at the heart of our modern industrial strategy, with more than 1,000 start-ups every day. . These new laws will give small businesses better access to the financing they need to succeed and help ensure they have a level playing field from which to establish fair contracts with the businesses they supply. »