Consultation looks at nullifying bans on invoice assignment clauses
9 December 2014
The government has launched a consultation on a measure that could make it easier for recruiters to access invoice finance.
Tue, 9 Dec 2014
The government has launched a consultation on a measure that could make it easier for recruiters to access invoice finance.
The consultation was published on 6 December.
Invoice finance involves a third party agreeing to buy unpaid invoices for a fee. This form of finance is often used by recruitment firms to plug the gap between paying the worker and being paid by the client.
But some commercial contracts contain a clause preventing the assignment of an invoice, which means invoice finance providers have to use a ‘waivers’ or ‘work-arounds’ in order to offer finance. Both measures increase the cost of providing invoice finance, typically used by small and medium-sized firms, and can lead to the refusal of finance altogether.
Samantha Hurley, head of external relations at the Association of Professional Staffing Companies (APSCo), welcomed the consultation as a “step in the right direction” but said more needed to be done to address ‘pay-when-paid’ clauses used by managed service providers (MSP) and recruitment process outsourcing (RPO) firms.
Hurley told Recruiter that ‘pay-when-paid’ clauses also stop recruiters accessing invoice finance or make it very expensive. Hurley said invoice finance for recruiters should not be viewed as financing debt because the payment of the money it covers has already been contractually agreed. “It is actually financing growth,” she said.
Kevin Barrow, a partner at Osborne Clarke, told Recruiter if hirers make life difficult for smaller and more niche recruitment companies then they may not have access to people with the best skills. However, he said it was normal for commercial contracts to prohibit the assignment of the ‘benefit’ to a third party. “The norm in any commercial contract is to say ‘no you can’t do that’.”
He added: “What this debate is really about is allowing staffing companies to approach MSPs and hirers to say ‘can I change that clause so I am allowed to assign it to my invoice discounter?’ They require the assignment of the benefit of the contract as security for the loan they have then made to the staffing company.”
Barrow said legislation on invoice finance could be quite “difficult” and “problematical”. It might be easier, said Barrow, to go for a “different model” of managed service provision contracts.
Andy Gunson, group finance director at recruitment industry supplier Optionis, said: “Invoice financing is a popular and useful means of securing access to finance within the staffing industry, due in part to the nature of the working capital cycle. It is encouraging to see the government taking steps to make it more accessible.
“This consultation is an example of the government’s determination to support ambitious and high-growth SMEs, including recruitment firms.
The consultation stated that the government does not intend to nullify the ban on invoice financial services contracts and tenancy agreements. It has also proposed that it should not extend to exclusivity clauses for supply chain finance.
The consultation, which follows is open to 16 February, can be viewed here.
The consultation was published on 6 December.
Invoice finance involves a third party agreeing to buy unpaid invoices for a fee. This form of finance is often used by recruitment firms to plug the gap between paying the worker and being paid by the client.
But some commercial contracts contain a clause preventing the assignment of an invoice, which means invoice finance providers have to use a ‘waivers’ or ‘work-arounds’ in order to offer finance. Both measures increase the cost of providing invoice finance, typically used by small and medium-sized firms, and can lead to the refusal of finance altogether.
Samantha Hurley, head of external relations at the Association of Professional Staffing Companies (APSCo), welcomed the consultation as a “step in the right direction” but said more needed to be done to address ‘pay-when-paid’ clauses used by managed service providers (MSP) and recruitment process outsourcing (RPO) firms.
Hurley told Recruiter that ‘pay-when-paid’ clauses also stop recruiters accessing invoice finance or make it very expensive. Hurley said invoice finance for recruiters should not be viewed as financing debt because the payment of the money it covers has already been contractually agreed. “It is actually financing growth,” she said.
Kevin Barrow, a partner at Osborne Clarke, told Recruiter if hirers make life difficult for smaller and more niche recruitment companies then they may not have access to people with the best skills. However, he said it was normal for commercial contracts to prohibit the assignment of the ‘benefit’ to a third party. “The norm in any commercial contract is to say ‘no you can’t do that’.”
He added: “What this debate is really about is allowing staffing companies to approach MSPs and hirers to say ‘can I change that clause so I am allowed to assign it to my invoice discounter?’ They require the assignment of the benefit of the contract as security for the loan they have then made to the staffing company.”
Barrow said legislation on invoice finance could be quite “difficult” and “problematical”. It might be easier, said Barrow, to go for a “different model” of managed service provision contracts.
Andy Gunson, group finance director at recruitment industry supplier Optionis, said: “Invoice financing is a popular and useful means of securing access to finance within the staffing industry, due in part to the nature of the working capital cycle. It is encouraging to see the government taking steps to make it more accessible.
“This consultation is an example of the government’s determination to support ambitious and high-growth SMEs, including recruitment firms.
The consultation stated that the government does not intend to nullify the ban on invoice financial services contracts and tenancy agreements. It has also proposed that it should not extend to exclusivity clauses for supply chain finance.
The consultation, which follows is open to 16 February, can be viewed here.
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