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A shot in the arm for SMEs

We have previously highlighted the provision of new government funding for the creative industries and also scientific research and innovation. These measures are part of a government strategy to create an economy in which small businesses can flourish. To that end, the government has also now turned its attention to the issue of invoice finance for SMEs.

In a nutshell, invoice finance allows a business to raise money by assigning the right to receive proceeds from unpaid invoices (otherwise known as ‘receivables’), to a bank, finance provider or investor, in exchange for an advance of funds – typically 65% to 85% of the value of the applicable invoices. The initial advance is usually paid within a few days and then the balance (less the relevant fees) is released when the invoices are settled. The provision of invoice finance to SMEs in the UK is currently a £9.5 billion industry.

However, the practice of larger businesses exploiting their stronger bargaining position, and preventing suppliers from assigning receivables, has become increasingly widespread. So, as a direct response to this, the Business Contract Terms (Assignment of Receivables) Regulations 2018 were placed before Parliament on Monday. The new regulations are designed to protect suppliers, and other small businesses, from ‘unfair’ contracts that effectively prevent them from raising money through invoice finance by prohibiting the assignment of the relevant receivables.

As such, provisions in purchase/supply contracts entered into on or after 31 December 2018, which prevent or restrict the supplier from assigning receivables under the contract, will simply have no legal effect (with some limited exceptions e.g. contracts with consumers, financial services contracts and contracts relating 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.”

It is hoped the new regulations will give the economy a long-term boost worth around £1 billion. They involve no compliance or reporting burden but we would expect supply contracts to evolve over time to reflect the new regulations. If you need advice on revising your supply contracts, or in relation to an invoice finance (or similar) arrangement, please contact any of the following:

Matthew Miller (Partner):         matthewmiller@boltburdon.co.uk or 0207 288 4739

Tim Lucas (Senior Solicitor):    timothylucas@boltburdon.co.uk or 0207 288 4753

Olivia French (Solicitor):          oliviafrench@boltburdon.co.uk or 0207 288 4778

Alternatively, you can also contact one of our other solicitors in the Corporate and Commercial team here.

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