Presently, a small firm’s contract with a larger business may restrict them from obtaining invoice finance from lenders such as banks and alternative investors.
There have been reports of larger businesses halting their suppliers from assigning ‘receivables’ i.e. the right to receive the proceeds from an invoice.
Furthermore, small suppliers subjected to restrictive contract terms tend to struggle negotiating changes to the contract, simply because they lack power in their respective markets.
The new laws suggest that any contractual restrictions agreed beyond 31st December 2018, with specific exceptions, would have no effect and could be disregarded by small firms and invoice finance providers.
From 2019, small suppliers can assign their right to be paid to a lender, such as a bank, in exchange for up to 80% of the value of the outstanding invoices. The initial advance will be supplied within a few working days and the remaining 20% - less fees and charges – is paid when the customer settles the invoice.
These measures should thwart larger companies from abusing their market position; dishing out a long-term enhancement to the UK economy worth an estimated GBP 1 billion. Up to GBP 9.5 billion worth of SME invoice finance is waiting to be unlocked to small suppliers.
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