Will invoice finance reform aid small businesses?
The Government has unveiled plans to remove restrictions relating to invoice finance, a move that could benefit many of the nation’s small businesses.
In a move that cuts some of the red tape faced by UK SMEs, the business department has stated that it will ban anti-invoice finance terms from appearing in contracts.
The change could occur as soon as 2016 and should mean that small businesses can secure finance against money owed to them in invoices.
This should remove some of the financial pressures placed on firms and could save companies £10 billion by the end of the decade according to business secretary Sajid Javid.
New deregulation methods should enable businesses to enhance their cash flows, although it is not a guarantee against insolvency or other financial problems.
Invoice financing enables a business to apply for funding using invoices for money that is owed to them as security.
It is estimated that more than 44,000 British firms get nearly £20 billion of funding through this method at any one time, based on details form the Asset Based Finance Association.
The new changes should help out thousands of firms as they will be able to access funding to help out their financial situation.
However, the method is not for everyone and firms should take all factors into consideration before deciding on a course of action.
Late payments are constantly in the headlines for the impacts they have on businesses but the latest changes might give business owners an alternative option when looking to access finance.
Efforts are already being made to tackle the issue while the Federation of Small Businesses believes that the changes will encourage more firms to take greater control over their money.
Good money management remains a vital part of running a business and any firm should look to ensure they have the necessary finances before targeting growth or expansion.
Of course this is not always possible, which is why a firm should approach insolvency practitioners at the first sign of financial trouble to limit any negative impacts on their business.
By Phil Smith