Business contract terms, specifically the assignment of receivables, have been subject to regulation in the UK since 2017. The regulations aim to protect small and medium-sized enterprises (SMEs) from unfair contractual terms, which can be detrimental to their cash flow and survival.

Under the regulations, a term in a business-to-business contract that prohibits or restricts the assignment of receivables is void, unless it meets certain criteria. These criteria include being agreed in writing between the parties and being reasonable, taking into account the circumstances existing at the time the contract was entered into.

The regulations also require that any notice of assignment of receivables must not impose any obligations or liabilities on the debtor, unless the debtor has agreed in writing to such obligations or liabilities. This is to prevent the debtor from being unfairly burdened with obligations they did not agree to.

While the regulations apply to contracts entered into after 31 December 2017, they do not apply to contracts entered into before that date or to contracts between consumers and businesses. However, businesses should still review their existing contracts to ensure they are compliant with the regulations.

The assignment of receivables refers to the transfer of a debt owed to a business by a customer to a third party, typically a financial institution. This allows the business to receive immediate payment for the debt and improve their cash flow, rather than waiting for the customer to pay the debt at a later date. The third party then takes on the risk of collecting the debt from the customer.

Some businesses may be concerned that the regulations limit their ability to assign receivables and obtain financing. However, the regulations are aimed at preventing unfair terms and do not prohibit the assignment of receivables altogether. As long as the criteria are met, businesses can still include terms relating to the assignment of receivables in their contracts.

In conclusion, the regulations surrounding the assignment of receivables aim to protect SMEs from unfair contractual terms that can harm their cash flow. Businesses should review their contracts to ensure compliance with the regulations and remember that they can still assign receivables as long as they meet the criteria. By doing so, businesses can improve their cash flow and secure financing while still protecting their rights.