Early 2016 will see the introduction of a ban on anti-invoice finance terms in contracts.
But the move lacks logic, according to the Association of Plumbing and Heating Contractors (APHC).
The new measure is set to particularly benefit small and medium enterprises (SMEs) by helping them to secure finance against money owed to them in invoices, speeding up economic growth and increasing numbers of available jobs. The move is also expected to provide SMEs with more funding opportunities.
Invoice finance often has the advantage of helping businesses to access money faster than if they simply waited for customers to pay them, allowing firms to apply for finance using invoices for money owed to them as security.
APHC chief executive, John Thompson, said: “While removing restrictions on invoice finance goes some way towards supporting small businesses, we nevertheless feel that government is looking at this issue the wrong way round. Surely a more logical approach would be to prevent late payment and retention issues arising at all by ensuring that contractors get effectively paid in the first place.”
According to the Asset Based Finance Association, which represents the invoice finance industry in the UK, more than 44,000 businesses receive over £19 billion funding this way at any one time. However, the size of the market is restricted by clauses designed to prevent a supplier from sub-contracting work. These clauses have the effect of blocking invoice finance arrangements and will be nullified, while retaining the customer’s right to prevent traditional sub-contracting arrangements.