The draft Business Contract Terms (Assignment of Receivables) Regulations 2017, which were expected to facilitate invoice financing and asset-based lending, have been withdrawn. Had the regulations been approved, they would have invalidated terms contained in certain business-to-business contracts that prohibit the assignment of receivables.

The draft regulations

The draft regulations were laid before the House of Commons on 14 September 2017, but were withdrawn on 15 November 2017. They were prepared in response to a consultation carried out by the Department for Business, Innovation & Skills on building a responsible payment culture. The consultation was set up in recognition of the severe administrative and financial burden faced by businesses every year as a result of late payment in business transactions, with the aim of seeking views on what the government can do to foster an environment where businesses treat suppliers fairly and accept their obligation to pay invoices within the agreed payment term.


A ‘receivable’ is a right (whether or not earned by performance) to be paid any amount under a contract (other than an excluded contract) for the supply of goods, services or intangible assets. 

Receivables are regarded as assets that are capable of being used to support finance, either as security for debts or sold under a factoring arrangement or through invoice discounting.  One common method of utilising receivables is through ‘invoice financing’ which allows a business to give the right to future payment to a finance provider in exchange for a loan up to the full value of the invoice. This can provide a crucial source of funding for businesses suffering with cash flow problems, particularly small to medium sized businesses (SMEs) who often experience long delays between completing a job and receiving payment of an invoice.

Issues with invoice financing

One significant barrier to invoice financing is the fact that most commercial contracts contain a general clause that prevents a party from assigning any of its rights under a contract without the other parties consent. In a commercial context, this is often included to prevent a supplier from sub-contracting to a different supplier. However, the effect of this general prohibition means that a party (generally the supplier) is often restricted from assigning the benefit of a payment obligation to a third party (such as a finance provider) without first obtaining the consent of the party who is required to make the payment - which is unlikely to be granted in many cases.

Scope of the draft regulations

The draft regulations would only apply to ‘relevant contracts’ which are business-to-business contracts for goods, services and intangible assets (e.g. intellectual property, data held in an electronic form). A number of contracts would also be expressly excluded such as contracts for prescribed financial services or contracts which concern an interest in land.  

While the draft regulations were primarily aimed at SMEs, the legislation did not specifically include any restrictions relating to business size.

The scope of the regulations would have extended beyond typical commercial contracts and consideration would need to be given to other types of contracts where this could be used to a party’s advantage. Certain clauses commonly found in a share or business purchase agreement such as, the right to receive sale consideration, or the power to factor trade receivables during the period between exchange and completion, are rights which could be legally assigned to a finance provider without first obtaining the consent of the party. 

How the assignment of receivables affects set-off rights

While the regulations could bring significant advantages to businesses, one issue that has yet to be fully considered is how the assignment of a receivable would affect the set-off chain between two parties in a commercial contract. Set-off is a legal right which can be used when two parties have a financial claim against each other. The right allows one party to reduce the amount it owes under an invoice (or other form of debt) by an amount that is owed to them by the other party. Set-off can be used as a defence or excuse for non-payment if, for example, a supplier has provided a poor service or supplied faulty goods. If that supplier has already assigned the benefit of an invoice, this could affect the other party’s ability to set-off a liability owed to it by that supplier.


Despite the draft regulations not being the subject of a formal consultation, it is understood they attracted a number of comments from various law firms and organisations including the City of London Law Society and the Financial Markets Law Committee. These organisations raised concerns that the scope and application of the draft regulations lacked clarity and that certain provisions appeared to be insufficient to achieve the intended objective. 

A revised version of the regulations are likely to be welcomed by business owners who recognise the benefit of invoice financing or other methods of utilising receivables as an asset that is capable of raising finance. However, in light of the government’s current preoccupation with Brexit, it could be quite a while before a new version of the regulations is placed before parliament. For now, business owners will have to make do with more traditional methods of regulating cash flow and supporting finance requirements.