Legislation passed last month saw both Houses of Parliament agree to put an end to Bans of Assignment – a contractual clause responsible for many SMEs being unable to gain access to much-needed funding. This is great news that we’ve been celebrating since the announcement was made, and I’m sure our clients feel the same.
What is the problem with Bans on Assignment?
Bans on Assignment create a barrier when it comes to providing invoice finance as some financiers are hesitant to provide funding where the contract between clients and their customers contains this type of clause. If the financier IS prepared to provide funding, they will either have to find a workaround – such as requesting that the business approaches their customer for consent – adjust the pricing or request additional security from the client. Each of these options will prove time-consuming, will increase costs and generally make it difficult for clients to obtain invoice finance.
This is why we’re delighted to hear that Bans on Assignment clauses are now null and void, in England, Wales and Northern Ireland. SMEs will therefore be able to assign receivables to invoice finance providers without having to spend time and money seeking consent from customers or trying to find workarounds to these clauses.
The regulation also makes any clause preventing a party from determining the value of a receivable and being able to enforce it ineffective. Again, this will increase the appeal of invoice finance for so many SMEs across the country.
Does the regulation impact you?
Obviously, this is great news for SMEs. However, there are still some caveats to the legislation.
- The regulations apply to contracts entered into on or after 31 December 2018
- They do not apply to receivables due to be paid to large enterprises or special purpose vehicles
- They exclude certain contracts from the scope of the regulations, for example those relating to land and for the provision of financial services
- They only apply to contracts governed by the laws of England, Wales and Northern Ireland. We hope to see the Scottish Government pass similar legislation in the near future
At Ultimate Finance, providing the financial support SMEs need to survive and thrive is why we exist. We therefore welcome these legislative updates as the removal of Bans on Assignment will make it easier for SMEs to access vital funding, compared to when such clauses are in place. We will soon be able to provide invoice finance to more SMEs across the country and that’s well worth celebrating. After all, good funding does the world of good.