Government removes bans on SMEs borrowing against unpaid invoices

overdue invoices

The move marks the latest effort from the new government to crack Britain’s late payments culture, which sees large firms delay paying bills, so starving small suppliers of cash.

It will enable companies to use invoice financing to get their hands on funds from unpaid bills they have issued. Businesses apply to factors and confidential invoice discounting companies who will lend crucial cash using invoices for money owed to them as security.

However many larger firms insist in contracts that smaller suppliers do not use invoice financing.

Soubry said: ‘By scrapping [big companies’] 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 cashflow.’

A similar rule is already in effect in the US, Canada and Australia. Its introduction in the UK follows last month’s announcement by Soubry of a small business payments tsar, who will champion small firms, particularly on the issue of late payment. That, too, is being based on measures adopted in Australia.

It is estimated that the country’s five million smaller firms are owed £26.8 billion in overdue payments.

Jeff Longhurst, chief executive of the Asset Based Finance Association, said: ‘This is good news for UK businesses. Invoice finance is a key source of funding for SMEs in particular, and taking effective action against bans on the assignment of invoices will allow more businesses to unlock the funding tied up in their unpaid invoices.

‘It’s a complex area and we look forward to seeing the detailed regulations, but the Government must be congratulated.’

John Allan, national chairman of the Federation of Small Businesses, said: ‘The decision to outlaw the ban on terms in contracts to prevent businesses from choosing who they want to go to for invoice financing is overwhelmingly positive for businesses around the country. Access to finance can be very challenging for small firms. Recent FSB research shows that 38 per cent of our members who applied for finance were refused in the second quarter of this year.’

Anil Stocker, co-founder and chief executive of MarketInvoice, said: ‘Business owners will know the frustration of completing a piece of work and then waiting months to get paid, so it’s important that businesses have the option to use their invoices to access funds straight away.

‘The Government’s move to stop big companies preventing smaller businesses using invoices to access finance is a welcome one. There was no good reason for big businesses to hold this power over their suppliers.’

Image: Overdue Account by Shutterstock