Business Contract Terms (Assignment of Receivables) Regulations 2018

Busi­ness Con­tract Terms (Assign­ment of Receiv­ables) Reg­u­la­tions 2018: Under­stand­ing the New Reg­u­la­tions and What They Mean for Your Company

The Busi­ness Con­tract Terms (Assign­ment of Receiv­ables) Reg­u­la­tions 2018 came into force on 31 Decem­ber 2018, and rep­re­sent an attempt by the UK gov­ern­ment to level the play­ing field between large com­pa­nies and SMEs when it comes to financ­ing. The reg­u­la­tions have sig­nif­i­cant impli­ca­tions for busi­nesses of all sizes, par­tic­u­larly those that rely on invoice fac­tor­ing, and it’s impor­tant for com­pa­nies to be aware of the new rules so they can stay on the right side of the law.

What Are the Busi­ness Con­tract Terms (Assign­ment of Receiv­ables) Reg­u­la­tions 2018?

The reg­u­la­tions are designed to pro­vide greater pro­tec­tion for SMEs that enter into con­tracts with larger busi­nesses, by reg­u­lat­ing the terms under which they can assign their receiv­ables to third-party financiers. Specif­i­cally, the reg­u­la­tions pre­vent larger busi­nesses from includ­ing clauses in their con­tracts that pro­hibit the assign­ment of receiv­ables to third par­ties, or which make such assign­ments sub­ject to their approval.

Why Were the Reg­u­la­tions Introduced?

The gov­ern­ment intro­duced the reg­u­la­tions in response to grow­ing con­cerns that the preva­lence of non-assignment clauses in com­mer­cial con­tracts was putting SMEs at a dis­ad­van­tage when it came to access­ing finance. Invoice fac­tor­ing, which involves a third-party financier pur­chas­ing unpaid invoices from a busi­ness at a dis­count, is a pop­u­lar form of finance for many SMEs. How­ever, non-assignment clauses often made it dif­fi­cult for SMEs to access this kind of fund­ing, as their larger cus­tomers would typ­i­cally refuse to give per­mis­sion for the invoices to be assigned to third parties.

By pro­hibit­ing the use of non-assignment clauses, the Busi­ness Con­tract Terms (Assign­ment of Receiv­ables) Reg­u­la­tions 2018 aim to make it eas­ier for SMEs to access this kind of finance, thereby help­ing to level the play­ing field between large and small businesses.

What Do the Reg­u­la­tions Mean for Businesses?

For SMEs that rely on invoice fac­tor­ing or other forms of financ­ing that involve the assign­ment of receiv­ables, the reg­u­la­tions rep­re­sent a sig­nif­i­cant step for­ward. They will make it eas­ier for SMEs to access the finance they need to grow and develop, with­out hav­ing to rely on the good­will of their larger customers.

For larger busi­nesses, how­ever, the reg­u­la­tions may rep­re­sent some­thing of a chal­lenge. Non-assignment clauses have tra­di­tion­ally been seen as a way for larger busi­nesses to pro­tect their cash flow and ensure that they are paid in a timely man­ner. Remov­ing these clauses from con­tracts could make it more dif­fi­cult for some larger busi­nesses to man­age their finances effectively.

In con­clu­sion, the Busi­ness Con­tract Terms (Assign­ment of Receiv­ables) Reg­u­la­tions 2018 rep­re­sent an impor­tant step for­ward for SMEs look­ing to access finance. By pro­hibit­ing the use of non-assignment clauses in com­mer­cial con­tracts, the reg­u­la­tions will make it eas­ier for SMEs to access the finance they need to grow and develop. How­ever, they may also pose a chal­lenge for larger busi­nesses, which will have to find new ways to man­age their cash flow in the absence of these clauses. It’s there­fore impor­tant for all busi­nesses to be aware of the new reg­u­la­tions and to take steps to ensure that they com­ply with them.