New Law Promises to Protect SMES Against Unfair Contracts

As part of the government's Modern Industrial Strategy, new laws are to be introduced to make it easier for small businesses to access invoice finance, arming small businesses against unfair contracts that stop them raising money from unpaid invoices.

Currently a small supplier’s contract with a larger company may prevent it from securing invoice finance from providers such as banks and other investors.

A number of larger businesses stop their suppliers from assigning ‘receivables’ – the right to receive the proceeds from an invoice. This assignment is essential for invoice finance to operate.

Restrictive contract terms are often used by larger businesses to maintain a hold over their suppliers, with small suppliers often unable to negotiate changes to the proposed contract because they do not have enough power in the marketplace.

Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with certain exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.

The new measures are expected to provide a long-term boost to the UK economy estimated to be worth almost £1bn.

Commenting on the move 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."