Ban on anti-invoice finance terms set to be implemented in 2016

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Ban on anti-invoice finance terms set to be implemented in 2016

The government has announced that it will be lifting restrictions on invoice finance from early next year in a move designed to help small businesses.

A ban on anti-invoice finance terms in contracts will come into force in England, Wales and Northern Ireland in order to help more small companies secure finance against money owed to them in invoices, which in turn is expected to speed up economic growth and create jobs for people.

This new ruling will bring the UK in line with laws that currently exist in the US, Canada and Australia, and is being introduced as part of the Small Business, Enterprise and Employment Act 2015.

Invoice finance allows businesses to apply for finance using invoices for money owed to them as security, meaning they can get access to money faster if they are still waiting for customers to pay them.

More than 44,000 businesses receive over £19 billion of funding this way at any time, according to the Asset Based Finance Association, but clauses aimed at preventing suppliers from subcontracting work are often having the unintentional consequence of blocking invoice finance arrangements.

These clauses will be nullified by the new ruling, which will nevertheless retain the customer's right to prevent traditional subcontracting arrangements.

Small business minister Anna Soubry said: "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 cashflow. 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."

The Federation of Small Businesses has welcomed this new measure, pointing recent research showing that 38 per cent of its members who applied for finance were refused in the second quarter of this year.