Skip to content

Invoice finance restrictions to be lifted for small businesses

Small businesses will be given the right to raise funds by borrowing against unpaid invoices from big business customers under new government proposals.

From next year firms will be freed from restrictive clauses in contracts that prevent them from gaining invoice finance. 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 £19bn 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.

Small business minister Anna 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.”

Anil Stocker, CEO and co-founder of MarketInvoice, welcomed the move.

He said: “Business owners will know the frustration of completing a piece of work and then waiting months to get paid; so it’s important that businesses have the option to use their invoices to access funds straight away.

“The government’s move to stop big companies preventing smaller businesses using invoices to access finance is a welcome one, there was no good reason for big businesses to hold this power over their suppliers.”

The Small Business, Employment and Enterprise Act 2015 allows the business secretary to introduce these measures, which received cross-party support during the passage of the Act through Parliament. A similar ban is in effect in the United States, Canada and Australia.

Topics

Register for Free

Get daily updates and enjoy an ad-reduced experience.

Already have an account? Log in