From December 31, 2018, covered supplier contracts governed by the law of England and Wales or Northern Ireland can no longer block the assignment of payment rights to a finance provider. The Business Contract Terms (Assignment of Receivables) Regulations remove the effect of restrictive terms in contracts entered into on or after that date, subject to supplier and contract exceptions. For a smaller business selling on credit, the change removes a buyer’s contractual obstacle to raising money against an unpaid invoice. [F1]

Invoice finance turns a right to future payment into cash sooner. In its September announcement, the business department described a supplier assigning that right to a finance provider in return for an initial advance, with the balance, less fees and charges, following when the customer pays. The government said smaller suppliers often lacked the bargaining power to change buyers’ restrictive terms. Removing that contractual obstacle does not itself amount to an offer of funding. [F1][F2]

The rule reaches beyond a clause expressly banning assignment. A term that stops the finance provider from checking a receivable’s validity, value or enforceability can also be caught. The specified information includes the date and number of the invoice and any related credit note, the reason for issuing the credit note, applicable discounts, the payment period and evidence that the supplier performed the work giving rise to payment. Purchasing teams need to check the restrictions on sharing invoice records as well as the assignment clause. [F1]

Large enterprises and special purpose vehicles, as defined in the regulations, are excluded. For a small or medium-sized company, the relevant conditions include not being part of a large group; a small subsidiary cannot assume its own size is enough. Excluded transactions include financial-services contracts, interests in land and consumer contracts. The rules also exclude contracts where no party entered the agreement in the course of carrying on business in the United Kingdom. [F1]

Buyers retain a material safeguard. The instrument’s explanatory note says a contractual right of set-off that the debtor could have used before assignment, or but for assignment, is not treated as a prohibited restriction. The information a finance provider must be able to obtain also includes evidence of potential defences and set-offs. An invoice can therefore become easier to finance without becoming an uncontested claim for its face value. [F1]

Source documents

  1. The Business Contract Terms (Assignment of Receivables) Regulations 2018, SI 2018/1254 — as madehttps://www.legislation.gov.uk/uksi/2018/1254/pdfs/uksi_20181254_en.pdf
  2. Government announces new measures to boost funding for small businesseshttps://www.gov.uk/government/news/government-announces-new-measures-to-boost-funding-for-small-businesses