Invoice finance freedom on way

Businesses are to be freed from a ban on using invoice finance in contracts, the government has confirmed.

Invoice financing – in which a third party agrees to buy unpaid invoices for a fee – can provide a valuable source of funds in the interval between completing work and receiving payment for it.

More than 44,000 businesses benefit from more than £19 billion of funding in this way at any one time, according to the Asset Based Finance Association (ABFA), which represents the UK invoice finance industry.

But many businesses find access to invoice finance is unintentionally restricted by a general anti-assignment clause in contracts to prevent suppliers sub-contracting, often imposed by large companies on smaller suppliers.

Small Business Minister Anna Soubry said on 10 August: “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 cash flow.”

Jeff Longhurst, chief executive of the ABFA, said: “Taking effective action against bans on the assignment of invoices will allow more businesses to unlock the funding tied up in their unpaid invoices.”

John Allan, national chairman of the Federation of Small Businesses (FSB), added: “The decision to outlaw the ban on terms in contracts to prevent businesses from choosing who they want to go to for invoice financing is overwhelmingly positive for businesses around the country. It’s something the FSB has been calling for and will empower businesses to take more control over their finances.”

The government said in a consultation on the issue, published on 9 August, that the process for introducing the legislation would start after the parliamentary summer recess. It is expected the measure will take effect early in the new year.

Link: Invoice finance information