Energy News – 21/01/2017
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A ban on anti-invoice finance terms in contracts will come into force early next year, widening funding opportunities for SMEs. What does it mean for you?
From 2016 businesses will be unbound from restrictive clauses in contracts that prevent them from gaining invoice finance. Under a new Government proposal that keys into the promise to tackle late payments, SMEs have been given the right to raise funds by borrowing against unpaid invoices from big business customers.
The move will assist the small to medium sized businesses that are “the economic backbone of Britain,” said Small Business Minister Anna Soubry. “By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.”
One of several alternative sources of finance, invoice finance allows businesses to apply for finance using invoices for money owed to them as security. While they may get money faster than if they waited for their customers to pay them, there is, of course, a fee.
Currently more than 44,000 businesses receive over £19 billion of funding this way at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.
However, larger businesses often use clauses that have the (sometimes unintentional) consequence of blocking invoice finance arrangements. An announcement from Department for Business, Innovation and Skills (BIS) has promised that these clauses will be invalidated, although customers’ right to prevent traditional sub-contracting arrangements will be preserved.
John Allan, National Chairman of the Federation of Small Businesses (FSB), called the proposal “overwhelmingly positive for businesses around the country.” Nevertheless, he underlined the importance of clarity around exactly which types of contracts will be affected.
Indeed, while the change could widen options on new sources of finance, SME owners would be advised to think carefully about how they approach the application process.
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