Facebook Twitter LinkedIn YouTube
East Midlands Chamber News

Small firms to be given the power to borrow against outstanding invoices

Small businesses could be given new powers to improve cash flow by borrowing against outstanding invoices.

Many supply contracts prevent 'assignment' of invoice debt, which makes it hard for smaller firms to secure loans from banks or investors.

But today (Monday 10 September) Small Business Minister Kelly Tolhurst will put forward new laws to arm small businesses against unfair contracts that stop them raising money from unpaid invoices.

Under the proposed new laws, any such contractual restrictions entered into after 31 December 2018, with limited exceptions, would have no effect and could be disregarded by small businesses and finance providers.

The move will stop larger businesses from abusing their market position and are expected to provide a long-term boost, estimated to be worth almost £1b, nto the UK economy.

Small Business Minister Kelly Tolhurst said: "The UK’s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day.

"These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply."

The proposed laws are being tabled because restricive covenants in contracts with larger business often stop their suppliers from 'assigning receivables’ – the right to assign the proceeds from an invoice. This assignment is essential for invoice finance to operate.

Restrictive contract terms are used by larger businesses to maintain a hold over their suppliers, with small firms often unable to negotiate changes to the contract because they do not have enough power in the marketplace.

The legal changes are set out in the draft ‘Business Contract Terms (Assignment of Receivables) Regulations 2018’.