New laws lift barriers to invoice finance for SMEs

George Hay Chartered Accountants

The Government looks set to introduce new laws to make it easier for small and medium-sized enterprises (SMEs) to access invoice finance; a measure which, it claims, will provide a £1bn boost to the UK economy in the long run.

The laws, which form part of the Government’s modern Industrial Strategy, will put an end to large companies contractually restricting SME’s ability to assign their debts from the beginning of 2019.

As a result, small businesses will benefit from the ability to raise funds by assigning their right to be paid (known as ‘receivables’) to a finance provider.

The initial advance, typically around 80 per cent of the invoice value, is received within a few days and the remaining 20 per cent (less fees and charges) is paid once the invoice in question has been settled by the customer.

Under current regulations, large companies can negotiate contracts whereby smaller suppliers are prevented from securing supply chain finance from lenders.

Small suppliers often struggle to negotiate changes to agreements with large companies because they lack the negotiating power necessary to do so.

The new measures, put forward by small business minister Kelly Tolhurst, will mean that any such contractual restrictions entered into after 31 December 2018 could be disregarded by small businesses and finance providers.

The rules will apply to SME suppliers and exemptions will include contracts for financial services, contracts with consumers and those contracts related to the sale of a business.

Small business minister Kelly Tolhurst said: “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.”

Despite the new laws being largely welcomed by industry professionals, there are concerns that the measures are still not getting to the root of the problem.

Mike Cherry, chairman of the Federation of Small Businesses (FSB) said: “In an ideal world, we wouldn’t have small businesses relying on invoice finance for survival – they would be paid promptly by big firms who see the benefit of respecting their supply chains rather than as a means to short-term credit.”

Richard Dilley, partner at George Hay, said: “Small businesses are repeatedly referred to as the backbone of our economy, yet are still coming up against unnecessary struggles which threaten their ability maintain a healthy cash flow in their businesses”

“These new measures are certainly a step in the right direction when it comes to giving small businesses the financial flexibility that they sometimes require. However, the underlying issue remains; that many big businesses are still failing to acknowledge the importance of good payment practice.”

A large proportion of our client base is made up of a wide range of small, local businesses and this is an area in which our team has a wealth of knowledge. We work with businesses across a range of industry sectors and we understand the issues facing them today.

We can help you to identify risks and opportunities, formulate your strategy, develop your business and ultimately, succeed. Find out how by speaking to one of our experts today – call us on 01462 708810.

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