A ban on anti-invoice finance terms in business contracts will be introduced by the Department for Business, Innovation and Skills (BIS) in early 2016, it has been announced.

The move is aimed at helping small firms secure finance using money owed to them in invoices as security. BIS believes the measures will positively contribute to economic growth and job creation.

Currently, more than 44,000 businesses use invoice financing to provide over £19 billion of funding according to the Asset Based Finance Association, the body that represents the invoice finance industry.

The problem occurs due to contract clauses that are designed to prevent a supplier from sub-contracting work. These have had the effect of blocking the supplier from being able to access invoice finance arrangements.

The new measures will retain a customer’s right to prevent traditional sub-contracting arrangements.

There are 2 types of invoice financing used in the UK:

• debt factoring – an invoice financier manages a company’s sales ledger and collects the money owed themselves
• invoice discounting – the invoice financier lends you money against your unpaid invoices.

Anna Soubry, small business minister, said:

“While invoice finance may not be right for everyone and is absolutely no excuse for late payment, I want small businesses to have the option of using it to increase their cashflow.”

John Allan, national chairman of the Federation of Small Businesses, said that the move was “overwhelmingly positive” and would “empower businesses to take more control over their finances.”

Jeff Longhurst, chief executive officer of the Asset Based Finance Association, said:

“Bans on assignment are often imposed by large companies on their smaller suppliers. With the work being done on late payment and now on ban on assignment, government [sic] has shown it is committed to addressing poor payment practices and getting a fairer deal for smaller businesses.”