Large businesses will no longer be allowed to implement clauses in contracts prohibiting suppliers from the use of invoice finance following a government announcement. The ruling, which will come into force early in 2016, will nullify contractual bans on so-called assignment contracts. As a result, SMEs will now be able to gain faster access to money by unlocking the funding available through unpaid invoices.
Benefit for UK businesses
Speaking about the announcement, the government's Small Business Minister Anna Soubry said the action would ensure businesses 'continued to grow and create jobs'.
She said: "Small businesses are the economic backbone of Britain…By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds." Anna Soubry, Small Business Minister
The plan, according to Soubry, will 'maintain the UK's position as the best place in Europe to start and grow a business'. In its summary of the decision, the government stated the ruling would 'directly benefit businesses', allowing easier access to finance which would 'speed up economic growth and create jobs for people.'
Reaction to the ruling from the small business community has been favourable. John Allan, National Chairman of the Federation of Small Businesses, said that the decision would be 'overwhelmingly positive' for SMEs across the country.
"Access to finance can be very challenging for small firms," he stated. "Recent FSB research showed that 38 per cent of our members who applied for finance were refused in the second quarter of this year."
Meanwhile, Jeff Longhurst, Chief Executive Officer of the Asset Based Finance Association (ABFA), said the ruling was 'good news' for UK businesses. He went on to praise the government's commitment to addressing late payment in order to 'get a fairer deal for small businesses'.
Using invoice finance to free up cash flow
The announcement from the government comes as research from Aldermore found that 15 per cent of key decision makers in small and medium-sized businesses are being kept awake at night with concerns about late payment. Commenting on the decision from the government, Carl D'Ammassa, Group Managing Director for Business Finance at Aldermore, said that the plan was an 'extremely welcome' move.
He said: "Ending the ban on assignment contracts will mean that all SMEs will at least have the option of using invoice finance to free up cash flow and prevent late payments becoming an issue.
"At a time when access to finance is high on the list of priorities of UK SMEs, having one more financing option available for all is an extremely welcome move."
Carl D'Ammassa, Group Managing Director for Business Finance at Aldermore
The use of invoice finance has been growing steadily, according to statistics from the Asset Based Finance Association; 78 per cent of the £18.9 billion borrowed by businesses in the second quarter of 2014 was through invoice finance.
"Invoice Finance is a perfect mechanism for a company expecting growth," said John Gregory, Managing Director of Tempo Insulation Services. "It would have been impossible to cope with our expansion without it."
Aldermore is a leading provider of alternative finance solutions to UK SMEs. You can learn more about invoice finance here.
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