30th June 2014
Small Business Bill outlaws clauses preventing use of invoice finance
- Legislation introduced to end unfair clauses used by big corporates
- SMEs given green light to borrow against unpaid invoices to fuel growth
New legislation will stop some big businesses from preventing their SME suppliers from using invoice finance and give small businesses the green light to grow and invest, says the Asset Based Finance Association (ABFA), the body that represents the asset based finance industry in the UK and Ireland.
The ABFA explains that the Small Business, Enterprise and Employment Bill, introduced in the House of Commons on Wednesday, will outlaw the use of clauses in businesses’ contracts with their suppliers which prevent the use of invoice finance. These clauses are often demanded by larger businesses, particularly in the retail sector, preventing their SME suppliers from using the invoices they issue to secure funding to grow their businesses.
The outlawing of clauses preventing the sale of invoices, known as ‘bans on assignment’ is a significant victory for the ABFA, which has long campaigned for the practice to be prohibited. It is also noteworthy that the issue is the very first problem addressed by the new Bill.
Jeff Longhurst, Chief Executive of the ABFA, says:
"For far too long, bans on assignment have prevented small businesses using an invaluable funding tool to fuel growth and investment. The Government has listened to Britain’s small business community and finally cracked down hard on this unfair practice."
"Big businesses will no longer be able to unilaterally insert these unreasonable clauses into their suppliers’ contracts and leave them unable to access the funding they need. This will free up small businesses to use what is often their biggest asset – their unpaid invoices – to get the finance to grow, invest, and create jobs."
The ABFA says that bans on assignment can be abused by big businesses to avoid paying invoices within the contractual terms, effectively forcing their SME suppliers to give them interest-free loans. Some invoice finance providers specialise in ensuring their clients’ invoices are paid within the contractual terms.
The ABFA says that a record £17.5 billion of invoice finance was in use by British businesses at any one time over the past year, up 9% on a year ago and 29% on the peak of the recession in 2009/10.
