New measures announced to boost funding for small businesses

The UK Government has announced new measures to boost funding for small businesses.

The Department for Business, Energy & Industrial Strategy said the changes will make it easier to access invoice finance, providing a £1billion long-term boost to Britain's economy.

The department explained that, 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.

New laws

Under the new laws, any such contractual restrictions entered into after the end of this year 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.

Small Business Minister Kelly Tolhurst said: "The UK’s 5.7million 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.

Receivables

"The proposed laws come as a number of larger businesses stop their suppliers from assigning ‘receivables’ – the right to receive the proceeds from an invoice. This assignment is essential for invoice finance to operate.

"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."

Invoice finance allows a business to raise funds by assigning their right to be paid to a finance provider in exchange for funds, typically representing 80% of the value of the invoices. The initial advance is received within a few days and the balancing 20% (less fees and charges) is paid when the customer settles the invoice. 

The new regulations will apply to SME suppliers, but there will be exceptions such as contracts for financial services, contracts with consumers and contracts connected with the sale of a business.

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