The Government is to introduce new measures to protect small businesses against unfair contracts that stop them raising money from unpaid invoices.
The new laws are intended to make it easier for small businesses to access invoice finance. Currently a small supplier's contract with a larger company may prevent it from securing invoice finance from providers such as banks and other investors.
Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with certain exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.
Invoice finance allows a business to raise funds by assigning their right to be paid (known as "receivables") to a finance provider in exchange for funds, typically representing 80% of the value of the invoices. The initial advance is received within a few days and the balancing 20% (less fees and charges) is paid when the customer settles the invoice.
Invoice finance is not borrowing because the supplier is receiving an advance against a future payment. However, some purchase contracts include terms that prevent access to invoice finance. Suppliers sometimes accept these contracts because of their weak negotiating position.
Small business minister Kelly Tolhurst said: "These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply."