A UK government consultation on legislation which will dramatically improve SMEs’ access to finance opened last Saturday.
The Bill has been hailed as a major step forward by the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
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The government proposed regulations to invalidate clauses in supplier contracts that prevent SMEs from using their unpaid invoices to secure funding.
The ABFA said restrictions in contracts banning the re-assignment of debts are often contained in contracts larger businesses have with smaller suppliers, meaning those smaller businesses are unable to get funding against the value of their unpaid invoices.
The Small Business, Enterprise and Employment Bill faced few amendments in the House of Commons, with the practice to be abolished should no changes be required from consultation.
Jeff Longhurst, chief executive officer of the ABFA, said: "These contractual restrictions place onerous and unnecessary restrictions on the freedom of UK businesses to use one of their most significant assets – the debts owed to them by their customers as represented by their unpaid invoices – to access finance. These are unacceptable restrictions, particularly in the context of ever-lengthening payment terms being imposed on smaller suppliers.
"These changes 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."
