Sunday, 2 December 2018

Selling Your Invoices: New Law

If you are running a small or medium sized business, pin back your lug holes. You may have outstanding invoices against other businesses which are spending more time on studying the Brexit deal than paying their creditors. Or perhaps the deadline for settlement of the invoices has not yet arrived. And this causes you cash flow problems.

What's the solution? You could sell your invoices to a finance company which means they will pay you something in the region of 80% of their value and they step into your shoes and collect what is due from the debtors as and when it is due.

'There's a b....y problem with that, ' did you say? You have been forced to sign contracts with your debtors which prohibits you from following the course I have suggested and assigning the benefit of the invoices to a third party like a finance company? A prohibition like this is far from uncommon. Finance companies which have taken an assignment can be much more aggressive about collecting on the invoices than the businesses who sent them out.

The law is changing in England, Wales and Northern Ireland  -for which you can give thanks to the Business Contract Terms (Assignment of Receivables) Regulations 2018 SI/2018/1254 - in relation to contracts made on or after 31 December 2018.
 
The change will not apply to a large enterprise (which is defined by the regulations). A business which is run by  a sole trader, partnership, unincorporated association, company to which the small companies regime applies or which qualifies as a medium-sized company under the Companies Act 2006 or a limited liability partnership will not be classified as a large enterprise and so will be able to assign away with abandon.

But some contracts are excluded from the new law including those for prescribed financial services, an interest in land and the transfer of a business but provided it includes a statement to that effect. Also out are contracts where at least one of the parties is not in business and where none of the parties is in business in the UK.