A ban on anti-invoice finance terms in contracts to be introduced in 2016 will benefit small businesses but is misdirected, APHC chief executive John Thompson has said.

By helping small businesses secure finance against money owed to them in invoices, it is hoped economic growth and the number of available jobs can be increased. The move is also expected to provide small and medium-sized enterprises with more funding opportunities.

Invoice finance often has the advantage of helping businesses to access money faster than if they simply waited for customers to pay them, allowing firms to apply for finance using invoices for money owed to them as security.

Mr Thompson said: “While removing restrictions on invoice finance goes some way towards supporting small businesses, we nevertheless feel that the Government is looking at this issue the wrong way round. Surely a more logical approach would be to prevent late payment and retention issues arising at all by ensuring that contractors get effectively paid in the first place.”

Small Business Minister Anna Soubry said: “Small businesses are the backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs. By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.”

According to the Asset Based Finance Association, which represents the invoice finance industry in the UK, more than 44,000 businesses receive over £19 billion funding through invoice finance at any one time.

However, the size of the market is restricted by clauses designed to prevent a supplier from sub-contracting work. These clauses have the effect of blocking invoice finance arrangements and will be nullified, while retaining the customer’s right to prevent traditional sub-contracting arrangements.