Home > Uncategorized > Ban on assignments to be lifted.

Ban on assignments to be lifted.

s300_department-for-business-innovation-skillsOne of the most outdated and unnecessary clauses imposed by certain creditors on their suppliers is the “ban on assignment”. This effectively prevents the supplier for invoice discounting or factoring the debt. You may ask why this is necessary and i will come to that

I do know how harmful this can be. This was quite common in construction and I know of one instance whereby a contract was cancelled by a main contractor on this basis sending a fairly well established electrical subcontractor in to administration. I have little doubt that the clause was invoked with a degree of glee

That can no longer occur. See this from the DBIS.

Businesses will be freed from restrictive clauses in contracts that prevent them from gaining invoice finance when new measures come into force early next year. The move will open up more funding opportunities and specifically benefit small businesses.

Invoice finance allows businesses to apply for finance using invoices for money owed to them as security. This means that, in some instances, they can get money faster than if they waited for their customers to pay them.

More than 44,000 businesses receive over £19 billion of funding this way at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.

But the size of the market is limited by clauses designed to prevent a supplier from sub-contracting work.

These clauses have the unintentional consequence of blocking invoice finance arrangements and will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.

There are further quotes in the piece highlighting this as a particular problem. In truth, in my experience, it is far less common than indicated. Usually where it remains in a contract, it is easily removed upon request. Why does this clause sometimes still appear? This brings me back to my original point.

Factoring, which was once the dominant form of asset based lending, was seen as a “lending of last resort”. Only to be used by firms genuinely struggling. Maybe at one time there was some truth in this when the charges were considerably higher and overdrafts were easier to obtain but the landscape has changed enormously. Invoice discounting is now the most logical and often most cost effective form of finance

These clauses were a remnant from the days when it was assumed that such borrowers “must be in trouble”. There is also a more cynical view which is perhaps illustrated by my example above, whereby this remains as a clause to invoke unexpectedly an to the creditors advantage

Thanks to the Department of business innovation and skills this is something we can finally wave goodbye to

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