The government has claimed that changes to invoice finance regulations will open up more funding opportunities and specifically benefit small businesses.

Restrictive clauses in contracts that prevent small businesses from gaining invoice finance will be scrapped when new measures come into force early next year.

More than 44,000 businesses receive over £19 billion of funding through invoice finance at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.

But the size of the market is limited by clauses designed to prevent a supplier from sub-contracting work.

These clauses have the unintentional consequence of blocking invoice finance arrangements and will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.

Jeff Longhurst, CEO of the Asset Based Finance Association, said: “This is good news for UK businesses. As government recognises, invoice finance is a key source of funding for SMEs in particular, and taking effective action against bans on the assignment of invoices will allow more businesses to unlock the funding tied up in their unpaid invoices.

“Bans on assignment are often imposed by large companies on their smaller suppliers. With the work being done on late payment and now on ban on assignment, government has shown it is committed to addressing poor payment practices and getting a fairer deal for smaller businesses. It is a complex area and we look forward to seeing the detailed regulations, but the government must be congratulated for the focus on this important area.”

Small Business Minister Anna Soubry said: “Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs. By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.

“While invoice finance may not be right for everyone and is absolutely no excuse for late payment, I want small businesses to have the option of using it to increase their cashflow. This is all part of our plan to maintain the UK’s position as the best place in Europe to start and grow a business.”