Bans on Assignment Clauses Abolished, What Does This Mean for Financing?

A recent decision was taken by the UK government to make Bans on Assignment clauses null and void. These clauses made it very difficult for many UK businesses to gain access to the finance they need to grow and meet objectives.

Below Steve Noble, COO at Ultimate Finance, offers insight into the potential changes ahead and the way these will impact business and financing.

Ongoing Brexit discussions may mean it seems much longer ago, but in November both Houses of Parliament passed legislation to end Bans of Assignment contractual clauses. This is great news that lenders and SMEs will have been celebrating since the announcement was made.

What’s the problem with Bans on Assignment clauses?

Bans on Assignment often blocks the provision of vital funding to SMEs as some financiers are hesitant to supply this where clients and their customers have agreed a contract containing 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 –or request additional security from the client. Each of these options proves time consuming, incurs unnecessary costs and makes it difficult for clients to obtain invoice finance. Unsurprisingly, this can cause SMEs to either struggle on without the support they need or rely on alternative finance options that aren’t right for their business.

What does the change mean?

This means that from 2019 SMEs will be able to access the funding they need more easily. It’s why I’m welcoming the news that after two previously unsuccessful attempts, 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 which can make things unnecessarily complex.

The legislation also makes clauses prohibiting 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 your business?

Clearly, this is great news for SMEs and funding partners across the country. However, there are still caveats in place which will inevitably frustrate some.

  • 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 – traditionally defined as businesses with more than 250 employees – 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

The final point will likely prove the most frustrating, as the current legislation doesn’t change anything for more than 345,900 SMEs in Scotland, leaving them to potentially continue struggling to gain access to vital funding next year.

Hopefully this won’t be a permanent issue however as the Scottish Government may follow in the Central Government’s footsteps and announce similar legislation to ensure SMEs north of the border aren’t at a disadvantage compared to the rest of the UK.

Onwards and upwards

Despite the caveats, the news that Bans on Assignment clauses will soon be a thing of the past is great news for SMEs and lenders alike. This should result in a simplified invoice finance process and therefore more small businesses gaining access to the funding they need to continuing thriving in 2019. If that’s not good news, I don’t know what is.

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