Applying to certain contracts created after 31 December 2018, the effect at the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations) is that parties will no longer be able to prohibit the assignment of receivables in the UK.

What is happening?

These provisions are aimed at improving access to invoice financing for small and medium-sized enterprises (SMEs). The government speculates that this will provide a £1bn, long-term, boost to the economy.

Why does it matter?

Invoice financing allows businesses to assign their right to be paid by a customer (known as “receivables”) to a finance provider. In return the finance provider provides the business with up-front funds. Prior to 1 January 2019, smaller businesses would usually be forced to engage with larger businesses on their standard terms, which often contained non-assignment clauses. Therefore, smaller businesses were previously restricted from engaging with invoice financing opportunities. Under the Regulations, non-assignment clauses are void and unenforceable.

The Regulations apply to contracts for the supply of goods, services or intangible assets where the supplier has the right to be paid under the contract. They will not apply retrospectively (except where a contract has been extensively amended). Therefore, most retailers only need to consider new contracts entered into after 31 December 2018.

However, there are a number of exceptions, which retailers should be aware of, including:

  • the Regulations do not apply if the supplier assigning is not an SME, but is a large enterprise or part of a large group
  • contracts “for, or entered into in connection with, prescribed financial services” are excluded
  • contracts for certain commodities, project finance, energy, land, share purchase and business purchase contracts and operating leases are excluded.

As a general rule, the Regulations only apply to contracts governed by English law but they prevent parties using a foreign law to evade the Regulations.