"This change removes a funding obstacle, meaning that SMEs will be able to more easily access the funding they need."
Why are Bans on Assignment clauses an issue?
Bans on Assignment create a barrier when it comes to providing SMEs with much needed funding as some financiers are hesitant to provide 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 adds time, increases 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 take out other forms of finance that aren’t suited to their individuals need.
Legislative update
This change removes a funding obstacle, meaning that SMEs will be able to more easily access the funding they need. 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 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 your clients?
Obviously, this is great news for SMEs and lending partners across the country. However, there are still some caveats to the legislation.
• The regulations apply to contracts entered into on or after 31 December 2018. This unfortunately means that any contract entered into prior to this date containing a Bans on Assignment clause will remain intact
• 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
I’m sure the final caveat will prove the most frustrating, as the current legislation doesn’t change anything for more than 345,900 SMEs in Scotland that may be looking to funding partners for financial support.
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.
Cause for celebration
Despite the caveats, the news that Bans on Assignment clauses will be null and void is great news for SMEs and lenders alike. This should result in an easier invoice finance process and therefore more small businesses gaining access to the funding they need to continuing thriving in 2019. I truly believe good funding does the world of good and this legislative change will facilitate exactly that.
