20 March 2008 | Jake Kanter
The government has lifted the ban on suppliers raising money against the value of outstanding invoices when bidding for public sector contracts.
The initiative was launched alongside this month's Budget in the paper Enterprise: unlocking the UK's talent. Government officials, including Chancellor Alistair Darling, hope it will help thousands of small suppliers compete on an equal footing for public sector contracts.
Vendors will now be able to sell their invoices to invoice discount and factoring firms, who then lend a percentage of the fee to the supplier until the invoice is paid. The move will also allow suppliers to raise funds using assets such as their property.
According to the Asset Based Finance Association (ABFA), which helped lobby the government into lifting the ban, the issue of asset-based finance - a catch-all term for lending - will help improve SMEs' cash flow.
Kate Sharp, chief executive of ABFA, said in a statement: "We are pleased the government has taken on board our comments and recognised that factoring and invoice discounting is an important source of finance for a large number of UK businesses."