The Department for Business, Innovations and Skills (BIS) has announced that it will be freeing businesses from restrictive clauses that ban the use of invoice finance, a popular source of income for small and microbusinesses.
Invoice finance enables businesses to apply for finance using invoices for money owed to them. This allows SMEs to gain their income faster, while avoiding the late payment crisis that is plaguing thousands of firms around the UK.
The government estimates that SMEs are owed £26bn in late payments, and they are spending on average £10.8bn a year in an attempt to recover overdue payments. This is why businesses are starting to use invoice finance as a reliable source of income.
The Asset Based Finance Association has found that nearly 45,000 businesses receive over £19bn worth of funding via invoice finance at any given time.
However, obstructive contract clauses are preventing suppliers from sub-contracting work, which is affecting the growth of invoice finance.
BIS now plans to nullify these clauses by 2016, giving SMEs the right to receive finance through their invoices. A similar ban is already in place within United States, Canada and Australia.
Anna Soubry, the governments Small Business minister has welcomed the decision to lift anti-invoice restrictions on small firms.
‘‘Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs.’’
‘‘By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.’’
Soubry continued by stating that although invoice finance doesn’t suit every SME, she hopes that all UK small businesses will consider using the option when trying to increase their cash flow.
Jeff Longhurst, chief executive officer of the Asset Based Finance Association also supports BIS’ decision:
‘‘As government recognises, 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.’’