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.