Freedom to Finance for (Sm)all Businesses

Posted on: September 8th, 2015

As many small companies know to their cost, their contracts with large customers often prohibit them from assigning their invoices as part of their cash flow funding arrangements. For many businesses without significant assets or real estate, and especially for start ups, the availability of invoice financing is often crucial to their operation and growth strategy and the insistence of large customers on banning invoice assignment can cause real issues.

After a consultation (which admittedly only garnered 20 responses), the Government has announced it will exercise its powers under the Small Business, Employment and Enterprise Act 2015 to prohibit this kind of contractual restriction in B2B contracts.

Surprisingly, the new rules will actually apply to all businesses (regardless of size) so long as the contract is under English law and at least one party operates in the United Kingdom. There are certain proposed restrictions for financial services contracts and contracts relating to real estate but it is anticipated that the vast majority of commercial agreements will be freed from restrictions on invoice assignment. However, as large companies will generally look for ways to structure their relationship as they wish, the real benefit of this change will probably mostly be felt by start-ups and small businesses.

The Government is looking to bring in the change as soon as possible after the Summer recess so hopefully we’ll hear more in the Chancellor’s Autumn Statement later this year.