Government announces new laws to improve small business access to ‘invoice finance’
The government has put forward new laws aimed at allowing small businesses to access invoice finance, which it says will provide a £1bn long-term boost to the economy.
Proposals put forward as part of the government’s Industrial Strategy initiative by small business minister Kelly Tolhurst will allow companies to raise money from unpaid invoices – meaning they can assign their right to be paid to a lender in exchange for funds.
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Tolhurst said: “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 laws are designed to combat restrictive contracts imposed by larger businesses, which can prevent smaller suppliers from assigning who has the right to receive the proceeds from an invoice. Without an ability to re-assigned who the invoice will be paid to, companies cannot typically use them to gain financing.
The changes are intended to come into effect at the end of the year, at which point restrictions on invoice finance will become null. The estimated value of the stock of invoice finance to SMEs is approximately £9.5bn, the government claims.
Mike Cherry, national chairman of the Federation of Small Business, said the move was “welcome”.
“Some small firms – especially exporters – want this extra potential choice open to them,” he said. “Ultimately, though, we have to tackle the underlying issue that’s being indirectly addressed here. The UK’s £1bn late-payment crisis sends thousands of firms to the wall every year. It needs to end.
“In an ideal world, we wouldn’t have small businesses relying on invoice finance for survival – they would be paid promptly by big firms who see the benefit of respecting their supply chains rather than as a means to short-term credit.
“The collapse of Carillion has brought the late payment crisis into sharp relief,” he added. “More action is urgently needed to build on today’s announcement. That includes publishing the terms of the late payment consultation we were promised in the spring and appointing non-executive directors with responsibility for ensuring suppliers are paid on time to all boards.”
Edward Winterton, UK CEO at financial services company Bibby said: “Invoice Finance is an essential means of growth funding for more than 40,000 businesses throughout the UK. However, the ban on assignment of receivables imposed by larger businesses can both limit and prohibit many SMEs from accessing much needed working capital, stifling growth and placing pressure on cashflow.”
“The Government’s proposals are a positive development and will undoubtedly support the growth of a wider number of businesses throughout the country, in turn boosting economic growth,” he added.