Government seeks to reform SME invoice finance

Small business minister, Kelly Tolhurst has put forward new laws to Parliament that will protect small firms against unfair contracts preventing them from raising money from unpaid invoices.

Presently, a small firm’s contract with a larger business may restrict them from obtaining invoice finance from lenders such as banks and alternative investors.

There have been reports of larger businesses halting their suppliers from assigning ‘receivables’ i.e. the right to receive the proceeds from an invoice.

Furthermore, small suppliers subjected to restrictive contract terms tend to struggle negotiating changes to the contract, simply because they lack power in their respective markets.

The new laws, proposed by Ms Tolhurst, suggests that any contractual restrictions agreed beyond 31st December 2018, with specific exceptions, would have no effect and could be disregarded by small firms and invoice finance providers.

From 2019, small suppliers can assign their right to be paid to a lender, such as a bank, in exchange for up to 80% of the value of the outstanding invoices. The initial advance will be supplied within a few working days and the remaining 20% - less fees and charges – is paid when the customer settles the invoice.

These measures should thwart larger firms from abusing their market position; dishing out a long-term enhancement to the UK economy worth an estimated £1 billion. Up to £9.5 billion worth of SME invoice finance is waiting to be unlocked to small suppliers.

“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,” said Tolhurst.

“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.”

Edward Winterton, UK CEO, Bibby Financial Services, welcomed the news and insisted that “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,” added Winterton.

“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.”

Cashflow is vital to any growing business. Whether you are a small business owner or a self-employed individual, you may find it difficult tracking down payments from customers with outstanding invoices.

Your local TaxAssist Accountant can put you in touch with a string of recommended debt collection services that specialise in efficient, cost-effective cash collection services.

For a free initial consultation on support for unpaid individual invoices or entire sales ledgers, call our friendly and experienced team today on 01224 637100 or drop us a line using our online enquiry form.

Date published 24 Sep 2018 | Last updated 24 Sep 2018