Proposed small business legislation will create greater access to funding

Proposed new legislation will void contractual restrictions placed on small businesses by larger organisations helping them to gain access to invoice finance.
The new laws, announced by Small Business Minister Kelly Tolhurst this week, come in response to complaints made by small businesses over the “unfair terms” latched to invoices supplied by big businesses.
Invoice finance is often a vital tool in a small business’ armoury, allowing them to effectively sell the invoice to a finance provider in return for advance funding.
To do so, a company must assign their right to be paid, known as receivables, to a finance provider in exchange for funds, typically amounting to around 80 per cent of the total value of the invoice. The remaining 20 per cent is then taken by the finance provider to cover the charge for the service.
However, reports show that a number of large businesses are deliberately removing the small business’ right to be paid. This is advantageous for larger businesses, as it means they can’t be chased by third party finance companies.
While these terms can be negotiated, it is often the case that small businesses simply do not have the market power to suggest alternative contract terms, perhaps due to fear that the larger organisation will take their business elsewhere.
The new legislation is designed to overturn this disproportionate relationship, paving the way for the invoice finance sector to work as intended. Under the new laws, any such contractual restriction entered into after 31 December 2018 would have no effect and could be disregarded by small businesses and finance providers.
The move is estimated to boost the economy by around £1 billion in the long term.
Commenting on the proposed legislation, Small Business Minister Kelly Tolhurst said: “The UK’s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day.
“These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply.”

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