11 Aug Small companies will be able to raise funds by borrowing against unpaid invoices as Minister ends bans on invoice finance
Small companies will be given the right to raise funds by borrowing against unpaid invoices from big business customers from early next year, Small Business Minister Anna Soubry will announce today.
The move marks the latest effort from Whitehall to crack Britain’s late payments culture, in which big firms delay paying bills, so starving small suppliers of cash.
It will enable companies to use invoice financing to get their hands on cash from unpaid bills they have issued. Businesses apply for lending using invoices for money owed to them as security.
But many larger firms insist in contracts that smaller suppliers do not use invoice financing.
A similar rule is already in effect in the US, Canada and Australia. Its introduction in the UK follows last month’s announcement by Soubry of a small business payments tsar, who will champion small firms, particularly on the issue of late payment. That, too, is being based on measures adopted in Australia.
It is estimated that the country’s five million smaller firms are owed £26.8 billion in overdue payments.
Jeff Longhurst, chief executive of the Asset Based Finance Association, said: ‘This is good news for UK businesses. Invoice finance is a key source of funding for SMEs in particular, and taking effective action against bans on the assignment of invoices will allow more businesses to unlock the funding tied up in their unpaid invoices.
‘It’s a complex area and we look forward to seeing the detailed regulations, but the Government must be congratulated.’
John Allan, national chairman of the Federation of Small Businesses, said: ‘The decision to outlaw the ban on terms in contracts to prevent businesses from choosing who they want to go to for invoice financing is overwhelmingly positive for businesses around the country. Access to finance can be very challenging for small firms. Recent FSB research shows that 38 per cent of our members who applied for finance were refused in the second quarter of this year.’
Anil Stocker, co-founder and chief executive of MarketInvoice, said: ‘Business owners will know the frustration of completing a piece of work and then waiting months to get paid, so it’s important that businesses have the option to use their invoices to access funds straight away.
‘The Government’s move to stop big companies preventing smaller businesses using invoices to access finance is a welcome one. There was no good reason for big businesses to hold this power over their suppliers.’
Paul Kruzycki, who in 2009 launched Ales By Mail with an £800 investment, has used MarketInvoice to manage cashflow.
When Amazon, which had been using the firm as its marketplace vendor for craft beer, announced it wanted to increase revenue from this segment to £500,000 and almost double the number of product lines it took from the company to 500, he needed to fund the growth. Kruzycki used MarketInvoice to enable him to pay a swathe of breweries regularly while facing longer payment terms from Amazon.
Article Published by DailyMail Online.