Ban on Assignment – Changes Ahead
New laws to help small businesses against unfair contracts that stop them raising money from unpaid invoices have been put forward.
Presently a supplier’s contract with a larger firm may include a ban on assignment clause. This can prevent it from securing invoice finance.
Many companies have sales contracts contain provisions stating that assignment is prohibited or subject to certain conditions.
Bans on assignment clauses are typically to prevent a supplier from subcontracting work out to an inferior provider or are to maintain confidential dealings between businesses.
However, these clauses often have the unintentional consequence of blocking invoice finance arrangements. Invoice finance allows businesses to release the cash that is tied up in unpaid invoices.
Under the new proposed law, any such contractual restrictions entered into after 31 December 2018, would have no effect and could be disregarded by small businesses and finance providers. This will help stop larger businesses from abusing their market position and will allow smaller businesses to access much needed cash flow solutions such as invoice discounting or factoring.
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.”