How would draft legislation help small businesses with a finance boost?
The Department for Business, Energy & Industrial Strategy has put forward draft legislation to help boost funding for small businesses. The Business Contract Terms (Assignment of Receivables) Regulations 2018 will make it easier for small businesses to access invoice finance, providing an estimated £1bn long-term boost to the economy.
Invoice finance allows businesses to assign their right to be paid by a customer to a finance provider. In return, the finance provider gives the business up-front funds. The finance provider will then seek the payment from the customer for themselves. This allows small businesses to receive an immediate injection of cash, without it being a form of borrowing.
Contracts between smaller businesses and larger businesses often contain ‘non-assignment’ clauses. These clauses prevent the smaller business from assigning their right to be paid; allowing the larger business to maintain a hold over the contract. This, in turn, prevents the smaller business from participating in invoice financing.
But, it’s now been recognised that, by using these type of non-assignment clauses, bigger businesses are abusing their power in the market. Under the proposed new regulations, any contracts that include these clauses won’t have any effect after 31 December 2018 – meaning small businesses and finance providers can ignore them.
Small business minister Kelly Tolhurst says, ‘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’.