A new Government consultation on legislation to improve SMEs' access to finance has been hailed as a major step forward by the Asset Based Finance Association (ABFA).
The Government proposes regulations to invalidate clauses in supplier contracts that prevent SMEs from using their unpaid invoices to secure funding.
The ABFA explains that restrictions in contracts banning the re-assignment of debts are often contained in the contracts larger businesses have with smaller suppliers. This will often mean that those smaller businesses are unable to get funding against the value of their unpaid invoices.
The Small Business, Enterprise and Employment Bill is currently being considered in the House of Lords. If successful, it will enable government to make Regulations to outlaw this practice.
Jeff Longhurst, Chief Executive Officer of the ABFA, which has been calling on Government to take action on this issue, says: “This is a major step forward in truly opening up SMEs’ access to finance. It’s a clear sign that the government recognises the big part that the asset based finance industry plays in the SME funding marketplace and the even greater role it could play in the future.
“Asset based finance has already become the biggest alternative to traditional lending, and as more businesses gain access, there is substantial capacity for further funding to be provided. It's been a long time in coming, but we are delighted to see the issue of bans on invoice assignment clauses addressed. At last, this is going to bring the UK into line with many other jurisdictions around the world.
“These measures will particularly benefit the smaller businesses that tend to be lower down in the supply chain and go some way to redressing the balance of power between small suppliers and larger customers. In turn this will benefit the wider economy as a whole."
He adds, “The Government must be congratulated for their commitment to this issue; what’s vital now is to see robust Regulations to implement this commitment brought forward as quickly as possible. If SMEs interests are to be protected, these rules cannot be watered down or delayed.”
Further information about the ABFA can be found at: www.abfa.org.uk
