Legislation passed in November saw both Houses of Parliament agree to put an end to Bans of Assignment – a contractual clause responsible for many SMEs being unable to gain access to much-needed funding. This is great news that lenders and SMEs alike will be celebrating, writes Ultimate Finance’s Steve Noble.
Bans on Assignment create a barrier when it comes to providing invoice finance, as some financiers are hesitant to provide funding where the contract between clients and their customers contains this type of clause.
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If the financier is prepared to provide funding, they will either have to find a workaround – such as requesting that the business approaches their customer for consent – adjust the pricing or request additional security from the client.
Each of these options will prove timeconsuming, will increase costs and generally make it difficult for clients to obtain invoice finance. Unsurprisingly, this can result in SMEs either suffering in silence and struggling on without the support they need or taking out other forms of finance that doesn’t fit their individual need.
LEGISLATIVE UPDATE
What the latest change means is that SMEs will be able to more easily access invoice finance funding, as they need it. This is why we are welcoming the news that after two previously unsuccessful attempts, the Business Contract Terms (Assignment of Receivables) Regulations 2018 have been approved by both Houses of Parliament.
In short, this means that Bans on Assignment clauses are now null and void in England, Wales and Northern Ireland. SMEs will, therefore, be able to assign receivables to invoice finance providers without having to spend time and money seeking consent from customers or trying to find workarounds to these clauses, which can make things unnecessarily complex.
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By GlobalDataThe regulation also makes any clause preventing a party from determining the value of a receivable and being able to enforce it ineffective. Again, this will increase the appeal of invoice finance for so many SMEs across the country. Who does this regulation impact?
Obviously, this is great news for SMEs and funding partners across the UK. However, there are still some caveats to the legislation:
• The regulations apply to contracts entered into on or after 31 December 2018. This, unfortunately, means any contract entered into prior to this date containing a Bans on Assignment clause will remain intact;
• They do not apply to receivables due to be paid to large enterprises or special-purpose vehicles;
• They exclude certain contracts from the scope of the Regulations, for example those relating to land and for the provision of financial services; and
• They only apply to contracts governed by the laws of England, Wales and Northern Ireland.
I am sure the final caveat will prove the most frustrating, as the current legislation does not change anything for more than 345,900 SMEs in Scotland that may be looking to invoice finance providers for funding support.
Any businesses entering into invoice finance contracts that include Bans on Assignment will need to continue finding time-consuming workarounds for the foreseeable future. Hopefully this will not be a permanent issue, however, as the Scottish government may follow in the central government’s footsteps and announce similar legislation soon to ensure that SMEs north of the border are not at a disadvantage compared to the rest of the UK.
THE FUTURE
Despite the caveats, the news that Bans on Assignment clauses will be null and void for any contracts entered into from 31 December is great news for SMEs and lenders alike.
This should result in a simpler invoice finance process and, therefore, more small businesses gaining access to the financial support they need to increase their resilience and ensure they thrive.
I truly believe that good funding does the world of good, and this legislative change will facilitate exactly this.
