BLOG: 16 SEPTEMBER 2015
THE REMOVAL OF UNFAIR CLAUSES FOR SME'S - FAIRNESS AT LAST?
Anna Soubry (Small Business Minister) has vowed to remove restrictive covenants used by many large businesses to the detriment of cash strapped SME’s prohibiting them from using invoice finance. In 2016 new measures will be introduced by the Government under the Small Business and Enterprise Act 2015.
The restrictive clauses were originally introduced into contracts to prevent suppliers (the SME) from subcontracting work, however due to the way the clauses were drafted they ended up preventing companies from accessing ‘invoice finance’ funding. The provision of invoice finance requires the assignment of debts as security, and such a clause removed the ability to provide funding.
About 44,000 companies receive more than £19bn of funding this way at any one time, but the size of the market is limited by such clauses.
The issue has been recognised for decades and acknowledge internationally as a problem, but until now has not been addressed by the UK Government. Some would say the Government has overlooked the issue (I suspect they didn’t understand its implications and had more important things to govern – no solace for the SME though!) despite various international / UN conventions that UK took the decision not to ratify
The minister 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 cash flow”. The announcement was well received by many prominent commentators/organisations.
Jeff Longhurst, Chief Executive of the Asset Based Finance Association, commented: “We welcome the Government’s commitment to addressing poor payment practices and getting a fairer deal for Britain’s small businesses. As unpaid invoices represent one of the biggest assets most SMEs have, these clauses have the effect of choking off a vital source of funding. For them to be outlawed is good news for small businesses in a difficult economic environment.”
Whilst the new legislation is to be welcomed it raises the question - what about those SME’s who can’t access invoice finance? Should there be tighter regulation around late payment practices imposed by large corporations to the detriment of the SME?
Cash strapped SME’s should also remember that there are other ways of accessing funding via the provision of asset refinance. This would see capital tied up in their plant and machinery being released, thus helping to support their working capital requirements. In addition, asset finance is an easy way for SME’s to purchase those important assets needed to help grow their businesses. Here at Davenham we offer both products and work in partnership with our clients to ensure we can offer the maximum level of funding they require.
The restrictive clauses were originally introduced into contracts to prevent suppliers (the SME) from subcontracting work, however due to the way the clauses were drafted they ended up preventing companies from accessing ‘invoice finance’ funding. The provision of invoice finance requires the assignment of debts as security, and such a clause removed the ability to provide funding.
About 44,000 companies receive more than £19bn of funding this way at any one time, but the size of the market is limited by such clauses.
The issue has been recognised for decades and acknowledge internationally as a problem, but until now has not been addressed by the UK Government. Some would say the Government has overlooked the issue (I suspect they didn’t understand its implications and had more important things to govern – no solace for the SME though!) despite various international / UN conventions that UK took the decision not to ratify
The minister 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 cash flow”. The announcement was well received by many prominent commentators/organisations.
Jeff Longhurst, Chief Executive of the Asset Based Finance Association, commented: “We welcome the Government’s commitment to addressing poor payment practices and getting a fairer deal for Britain’s small businesses. As unpaid invoices represent one of the biggest assets most SMEs have, these clauses have the effect of choking off a vital source of funding. For them to be outlawed is good news for small businesses in a difficult economic environment.”
Whilst the new legislation is to be welcomed it raises the question - what about those SME’s who can’t access invoice finance? Should there be tighter regulation around late payment practices imposed by large corporations to the detriment of the SME?
Cash strapped SME’s should also remember that there are other ways of accessing funding via the provision of asset refinance. This would see capital tied up in their plant and machinery being released, thus helping to support their working capital requirements. In addition, asset finance is an easy way for SME’s to purchase those important assets needed to help grow their businesses. Here at Davenham we offer both products and work in partnership with our clients to ensure we can offer the maximum level of funding they require.
