As part of its clampdown on late payments, the government is to ban clauses in contracts that prevent small businesses from securing invoice finance
The government isn't hanging about with its efforts to make life easier for Britain's small businesses. Only last month it announced the creation of a small business commissioner who will be tasked with tackling the late payment culture that for years has been impeding the growth of small firms. And, while some said the proposals didn't go far enough, there's a chance they'll be appeased by the news that the government is looking to make it easier for businesses to secure invoice finance.
From early next year, businesses will be freed from clauses in contracts that prevent them from gaining invoice finance, which allows companies to apply for finance using unpaid invoices as security. This often means that small businesses can get money faster than if they waited for their customers to pay them.
However, the ability of small companies to take advantage of this type of finance is limited by clauses that prevent a supplier from sub-contracting work and that have the unintentional consequence of blocking invoice finance arrangements. Under the government's proposals, such clauses will be nullified while retaining a customers's right to prevent traditional sub-contracting arrangements.
"Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs," said Anna Soubry, minister for small business. "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 cash flow. 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."
Anil Stocker, CEO and co-founder of MarketInvoice, the invoice trading platform, 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."
John Allan, national chairman of the Federation of Small Businesses, added: "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. It’s something the FSB has been calling for and will empower businesses to take more control over their finances. As the change will start when the rules come into force, it is important that small businesses have clarity around exactly which types of contracts will be affected."
Anything that frees up more time for small businesses to focus on growth gets our vote.