Contract clauses which restrict businesses from gaining invoice finance will be lifted, following the proposed introduction of new measures next year.
BIS (Business, Innovation and Skills) confirmed the ban on contract terms that some commercial customers apply to their suppliers through contracts.
Originally they were permitted to use terms to bar a supplier from what’s called ‘invoice assignment’. This can increase the cost or even prevent the supplier’s access to invoice finance – often be a vital source of business funding and to aid cash flow.
It is believed the ban will create greater funding opportunities and benefit small businesses.
Invoice finance enables businesses to receive funds using issued and outstanding customer invoices.
This means they get the money quicker than if they wait for the customer to pay, which can often be upwards of 30 days.
In excess of 44,000 businesses use the process to speed up and ease cash flow, receiving over £19bn of funding this way at any one time, according to the Asset Based Finance Association (ABFA), which represents the UK invoice finance industry.
Nevertheless the size of the industry has previously been limited by clauses designed to prevent a supplier from sub-contracting work.
Source: Insolvency News
With Corporate Insolvency figures already on the decline, access to increased funding opportunities may may enable more businesses to avoid liquidation or administration.