Banning assignment bans

Factoring and invoice discounting are forms of asset-based funding structures that enable businesses to ease cash flow and fund growth by selling book debts and other receivables due to them from customers at a discount for immediate cash. Industry figures show an increasing use of such funding — £275bn in 2013, up by 10 per cent on the previous year.

However, a recent government consultation on improving access to finance for small and medium-sized enterprises (SMEs) identified one area that can act as a restraint. Under their standard terms of business, some customers do not allow their suppliers to assign (that is, sell) the debts due from them — this effectively prevents suppliers in such a situation from using factoring or invoice discounting. The government is now proposing legislation to address this.

Provisions in the recently published Small Business, Enterprise and Employment Bill will enable the government to issue regulations to make ineffective any clause in a ‘relevant contract’ that bans or restricts the assignment (sale) of the right to be paid any amount under the contract. A ‘relevant contract’ is to be one for the sale or supply of goods or services (but not financial services) entered into in the course of business…

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