Business welcomes freeing up of invoice financing

BUSINESSES will be freed from restrictive clauses in contracts that prevent them from gaining invoice finance when new measures come into force early next year.

The move will open up more funding opportunities and specifically benefit SMEs and has been broadly welcomed by businesses in the North West.

Invoice finance allows businesses to apply for finance using invoices for money owed to them as security.  This means that, in some instances, they can get money faster than if they waited for their customers to pay them.

More than 44,000 businesses receive over £19bn of funding this way at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.

But the size of the market is limited by clauses designed to prevent a supplier from sub-contracting work.

The clauses have the unintentional consequence of blocking invoice finance arrangements and will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.

Small Business Minister Anna Soubry said: “Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs.

“By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.

“While invoice finance may not be right for everyone and is absolutely no excuse for late payment, I want small businesses to have the option of using it to increase their cashflow. This is all part of our plan to maintain the UK’s position as the best place in Europe to start and grow a business.”

The Government plans have meanwhile been hailed by Manchester-based Ashley Business Finance.

Its chairman Jonathan Cranston said: “Restrictions in contracts are commonplace. Over the years we’ve had to turned down many small businesses which have applied to us for funding because their customer has put a clause in the contract preventing them from using their invoices to raise finance.

“Often big companies don’t like dealing with invoice finance providers as they know we have professional credit control teams in place to chase up unpaid bills. However these restrictions are grossly unfair.

“With small firms facing difficulty in raising finance, invoice finance is often the most realistic option. Effectively they are being denied access to finance. At the same time some of these big companies are forcing them to accept payment terms as long as 90 to 120 days which they are expected to fund from their own cashflow.”