A legal loophole that inadvertently prevents small businesses from obtaining invoice finance on their outstanding invoices will be closed from the start of next year.
In early 2016, new rules will come into effect to ensure all outstanding invoices can be used to raise invoice finance – the alternative funding arrangement that allows money to be released from invoices before they have been settled, in exchange for paying a fee or percentage commission to a third party.
Until now, some contracts have included clauses to prevent work from being subcontracted out, which in some cases has made it impossible to legally raise invoice finance against that contract.
With more than £19 billion in funding granted to over 44,000 businesses in the UK at any one time, it’s a development that is likely to be welcomed by firms that make regular use of invoice finance as a stop-gap credit control measure.
Small business minister Anna Soubry said: “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.”
“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.”
Invoice finance has come under criticism for being used, as Ms Soubry noted, to excuse late payment in some cases – leaving the creditor to pay the fee or commission for accessing their invoice funds until the debtor decides to pay.
However, for those who choose it as part of their credit control processes, the news that contracts will not be able to inadvertently block access to this alternative form of funding should be welcomed.
If you would like to talk to a member of our team please don’t hesitate to call 0808 252 5993.