The Department for Business Innovation & Skills has recently published the government’s response to a consultation concerning the nullification of clauses which ban the assignment of invoices. The paper outlines the government’s intention to legislate to nullify such clauses and it is hoped that the new measures will improve cash flow and access to invoice financing for SMEs. Any legislation would be implemented under powers conferred by the Small Business, Employment and Enterprise Act 2015.
Invoice financing enables a company to use its unpaid invoices as security against which it can borrow funds. This method of financing allows a company to receive an injection of working capital which it would otherwise have to wait to receive pending actual payment of its invoice by the customer. Invoice financing therefore aims to provide a solution to the problem of late payment of invoices which continues to be a burden on UK companies. Research carried out by Bacs Payment Schemes Limited estimates that over 75% of all UK companies were kept waiting more than one month beyond agreed remittance terms before being paid.
Companies looking to access invoice financing may be restricted from doing so where their commercial customers contractually bar the assignment of invoices. These barriers will be made ineffective under the government’s proposals which will affect business-to-business contracts, regardless of the size of the business, but will not apply to certain contracts for financial services.
Further details of the new proposals will come to light once the Parliamentary process is started which should be after the summer recess.
The government’s response referred to in this blog, published on 9 August 2015, is available here.
For further information regarding this topic please contact David Kinch, Partner.
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