nullification of ban on invoice assignment clauses

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• Business and industry

Invoice finance: nullifying the ban on invoice assignment contract clauses

Download the full outcome.

Government response: nullification of ban on invoice assignment clauses

Ref: BIS/15/441

PDF , 209 KB , 3 pages

Detail of outcome

We plan to stop bans on invoice assignment clauses in business to business contracts. These powers are granted to us through the Small Business, Employment and Enterprise Act 2015 .

Feedback received

Summary of responses to the nullification of ban on invoice assignment clauses

PDF , 201 KB , 13 pages

Detail of feedback received

We received 20 responses to the consultation. These mainly came from:

• business representative bodies
• invoice financiers and law practitioners

We also had some responses from large businesses in the retail and construction industry. A full list of respondents is available in Annex A of the summary of responses.

Original consultation

We’re asking for views on our proposals to nullify bans on invoice assignment terms in business to business commercial contracts.

This consultation ran from 9am on 6 December 2014 to 11:45pm on 11 February 2015

Consultation description

Invoice finance allows a business to give the right to future payment to a finance provider in exchange for a loan up to the full value of the invoice. It can provide a vital source of finance if a business has to wait a long time between completing a job and receiving payment.

The ban on invoice assignment is often part of a more general ban on an assignment clause in the contract to stop a supplier from sub-contracting. As a result, a business’ access to invoice finance is often unintentionally restricted.

In December 2013, we published our discussion paper Building a responsible payment culture . This asked whether removing contractual barriers to selling invoices would be helpful to small businesses by increasing their access to different finance options. The majority of respondents agreed that it would be helpful.

We announced in the government response that we would legislate to remove these barriers to financing. Clauses 1 and 2 of the Small Business, Enterprise and Employment Bill provide the broad legislative power to do this.

We propose to introduce a regulation that would nullify any bans on invoice assignment terms in business to business commercial contracts. We want to know your views on our proposals, the draft regulations and the costs and benefits of the measure on both companies and the invoice finance market.

Small Business, Enterprise and Employment Bill: nullification of ban on invoice assignment clauses

Ref: BIS/14/1232

PDF , 240 KB , 19 pages

Draft Statutory Instrument: Business Contract Terms (Restrictions on Assignment of Receivables) Regulations 2015

Ref: BIS/14/1232/AN1

PDF , 181 KB , 2 pages

Measure to nullify ban on assignment clauses in a debtors terms of sale: impact assessment

Ref: BIS/14/1233

PDF , 982 KB , 47 pages

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Added government response.

A summary of public responses has been added.

Consultation closing date corrected (from 16 to 11 Feb 2015).

First published.

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Secured Transactions Law Reform Project

Considering the need and shape of future reform, ban on assignment clauses.

Receivables financing is a very important source of finance for small businesses.  Anything which limits the availability of this type of financing, or which increases its costs, requires examination.   Receivables financiers take an assignment or a charge over the receivables they finance.

Some contracts for the supply of goods or services by small businesses include a clause banning assignment of the receivables arising under the contracts: we call these ‘ban on assignment clauses’.   If receivables arising from such a contract are the subject of an assignment to a receivables financier, it may be difficult  for an assignee to enforce collection of those receivables if the assignor experiences financial difficulties, and the debtor can refuse to pay the financier directly.   The concern which arises is whether these difficulties  mean that finance of such receivables is refused, or that steps have to be taken which increase the cost of financing.

Statutory controls on the effect of ban on assignment clauses have been introduced in a number of jurisdictions as well as in the 1988 UNIDROIT Convention on International Factoring, the 2001 UN Convention on the Assignment of Receivables in International Trade, the 2007 UNCITRAL Legislative Guide on Secured Transactions and, more recently, have been included in the UNCITRAL draft Model Law on Secured Transactions. The draft regulations in the Law Commission Consultation Paper 176 and Report 296 also included a limited override of such clauses.    The project is considering whether a limited override should be introduced into English law, and, if so, what the limits should be.

Detailed arguments for and against a limited override are set out in presentations delivered at a recent seminar for receivables financiers . 

It is reasonably clear that outside the context of trade receivables financing, ban on assignment clauses perform a useful and important function, and should not be overridden.   The important debate focuses on whether a limited override would improve access to financing for small businesses.

In order to inform this debate, we are very keen to find out the views of anyone who is interested in this area.    We have drafted a short survey for those financing against receivables, looking at whether ban on assignment clauses cause problems and increase costs, methods used to overcome difficulties in enforcement and frequency of the use of such clauses.

If you are involved in the receivables financing industry, please take a few moments to fill in the  survey and send a scanned copy to [email protected]

Nullification of a ban on invoice assignment clauses was proposed in the form of a power of a Secretary of State to make Regulations in clause 1 of the Small Business, Enterprise and Employment Bill (SMEE Bill). At the beginning of the year BIS conducted consultation on the Bill, which closed in February 2015. The summary of responses along with draft regulations are available here . On 26th March the SMEE Bill ill received royal assent.

The text of the Small Business, Enterprise and Employment Act 2015 can be found  here .

On 9 August 2015, the Government responded to its consultation and announced that a ban on anti-assignment clauses would be brought in under the Act early next year . The Asset Based Finance Association and the National Federation for Small Businesses have spoken in support of the move.

As of the 31st December 2018, the Business Contract Terms (Assignment of Receivables) Regulations 2018  will nullify the effect of terms in contracts that impose conditions or restrictions on the assignment of receivables in contracts with SMEs.

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Government consults on nullification of ban on invoice assignment clauses

Article summary.

Banking & Finance analysis: What effect would proposals to nullify bans on invoice assignment clauses have on companies and suppliers?

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Ban on invoice assignment clauses to be made ineffective

Blog - 09/09/2015

The Department for Business Innovation & Skills has recently published the government’s response to a consultation concerning the nullification of clauses which ban the assignment of invoices. The paper outlines the government’s intention to legislate to nullify such clauses and it is hoped that the new measures will improve cash flow and access to invoice financing for SMEs. Any legislation would be implemented under powers conferred by the Small Business, Employment and Enterprise Act 2015.

Invoice financing enables a company to use its unpaid invoices as security against which it can borrow funds. This method of financing allows a company to receive an injection of working capital which it would otherwise have to wait to receive pending actual payment of its invoice by the customer. Invoice financing therefore aims to provide a solution to the problem of late payment of invoices which continues to be a burden on UK companies. Research carried out by Bacs Payment Schemes Limited estimates that over 75% of all UK companies were kept waiting more than one month beyond agreed remittance terms before being paid.

Companies looking to access invoice financing may be restricted from doing so where their commercial customers contractually bar the assignment of invoices. These barriers will be made ineffective under the government’s proposals which will affect business-to-business contracts, regardless of the size of the business, but will not apply to certain contracts for financial services.

Further details of the new proposals will come to light once the Parliamentary process is started which should be after the summer recess.

The government’s response referred to in this blog, published on 9 August 2015, is available here .

For further information regarding this topic please contact David Kinch , Partner.

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London Registrars

Government issues response on nullifying ban on invoice assignment contract clauses.

With so many of those that take advantage of London Registrars’ business formation services being frequently anxious about accessing finance and maintain their company’s cash flow, they may be interested to read the Government’s response – released in August – on the subject of nullifying the ban on invoice assignment contract clauses.

Some businesses – particularly small firms – have long found that the only assets against which they can borrow are invoices for payment due to them for their provided goods or services. Suppliers therefore often greatly depend on invoice finance. However, it is still possible for a supplier’s commercial customers to contractually bar invoice assignment, which can increase the cost of invoice finance or even prevent access to it at all.

This prompted a provision in the Small Business, Employment and Enterprise Act 2015 to nullify bans on assignment, with the Government having consulted on its initial proposals (Nullification of Ban on Invoice Assignment Clauses), including draft Regulations, in December 2014. 20 responses were received from a broad range of respondents, encompassing invoice financiers, legal practitioners, academics, representative bodies and businesses of various sizes.

The Department of Business, Innovation & Skills (BIS) added that it had held meetings with groups of businesses from across the industrial sectors, including retail and construction, meeting with stakeholders to develop its final proposals after the publication of its Summary of Responses.

Considering the views that it had received, the Government came to several conclusions on exceptions to the ban on invoice assignment clauses including the following. That such a measure should apply only to business to business contracts, as opposed to also including business to consumer contracts, that the nullification should extend to all sizes of business, but should exclude financial services contracts, due to non-assignment being crucial to the functioning of some financial market products. That contracts with interests in land be given the existence of already significant related laws that it did not wish the new regulations to interfere with and finally that no special provisions for supply chain finance arrangements should be created by the exceptions, thus enabling suppliers to opt into supply chain financing arrangements or seek alternative arrangements with other invoice financiers.

In the words of BIS in its response document, “These proposals will directly benefit businesses, and will contribute to making the UK the best place in the world to start and grow a business. We will consequently aim to begin the Parliamentary process after the summer break in order to commence these proposals as soon as possible.”

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