New laws proposed by the UK government that should help small business get paid by bigger organisations in a timely fashion, are before Parliament this week for debate soon. One of the measures is specifically designed to prevent bigger firms abusing their stronger position. The legal changes are set out in the draft ‘Business Contract Terms (Assignment of Receivables) Regulations 2018’.
The UK government says that the new laws will make it easier for small businesses to access invoice finance. The proposals form part of the government’s modern Industrial Strategy and the government estimates that typically £1bn is owed to small business at any one time. Invoice finance allows a business to raise funds by assigning the right to be paid to a finance provider, typically for 80% of the value of the invoices.
Currently a small supplier’s contract with a larger company may prevent it from securing invoice finance from providers such as banks and other investors. Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with some exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.
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.
– Kelly Tolhurst, Small Business Minister, UK Government
The government says that restrictive contract terms are often used by larger businesses to maintain a hold over their suppliers, with small suppliers often unable to negotiate changes to the proposed contract because they do not have enough power in the marketplace.
The feels like a familiar stance from governments in recent years. Unpaid invoices to SMEs are a real problem that can significantly impact cashflow and expansion and this isn’t the first time that action has been promised to tackle the problem. Indeed, there is no particular anecdotal evidence to suggest that previous measures have made any tangible improvement to the situation.