It has long been a source of annoyance to both factoring companies and their clients that certain companies and institutions have a clause in their terms and conditions banning the assignment of any invoice rendered to them but it looks like this practice will be coming to an end shortly as the Small Business, Enterprise and Employment Bill which has been passed by the House of Commons and is now on it’s way to the House of Lords will outlaw this practice.
There has never been a valid reason for companies incorporating this ban on assignment in their terms and conditions as factoring doesn’t take away any of the legal rights that a company may have against it’s supplier if the goods are faulty, the services not performed properly or a contract not fulfilled.
And the worst culprits are?
Intriguingly one of the major culprits has been the Government itself which despite promises made several years ago to cut out this practice still persists in several departments.
The other major culprit has been the construction industry as a trade sector and they were probably the first to adopt this restrictive practice.
Why do these restrictions exist?
The ABFA claimed that “bans on assignment can be abused by big businesses to avoid paying invoices within the contractual terms, effectively forcing their SME suppliers to give them interest-free loans” but that isn’t the real reason why companies have done this as it’s a safeguard against paying a factored invoice directly to the supplier instead of the factoring company as if the worst came to the worst and the supplier banked the cheque then went bust the company would be legally required to pay the debt again but this time correctly to the factoring company as per the notation on the invoices.
It seems that the Minister of State when proposing to nullify the ban on assignment clauses has done so in order to open up a finance option for companies who would like to enter into factoring arrangements but cannot due to this restrictive practice.
Once this piece of legislation has become law it would be nice if the Government could turn their attention to the “pay when paid” clauses that are currently the curse of the recruitment industry