The government department for Business, Innovation and Skills, has announced that there will be a ban on certain types of clauses contained within the contracts that some larger companies have with their smaller suppliers and which prevent the suppliers from accessing invoice factoring. These clauses are often a restriction or complete bar on the assignment of the invoices to third parties. Assignment of the invoices is a condition of the suppliers being able to factor the invoices.
Invoice factoring is a way that many small businesses can free up cash on unpaid invoices by using the invoices as security for cash advances by the invoice financier. Statistics from the Asset Based Finance Association, which represents the UK invoice finance industry, state that over 44,000 businesses currently use factoring, and receive over £19bn of funding this way.
It is hoped that by preventing larger companies from imposing the bans on assignment, that more smaller businesses will be able to access the various types of invoice finance. Indeed, the minister for small businesses, Anna Soubry, stated "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".
It is expected that the new measures will come into force early next year.