The move allows firms to apply for finance using invoices for money owed to them as security, which the government claims will open up more funding opportunities and specifically benefit small businesses.
According to the Asset Based Finance Association, more than 44,000 businesses receive more than £19bn funding in this way.
However, the government claims the market is limited by clauses designed to prevent a supplier from sub-contracting work, which have an unintentional consequence of blocking invoice finance.
These clauses will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.
Anna Soubry, Small Business Minister, said: “Small businesses are the economic 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.”
John Allan, national chairman of the Federation of Small Businesses, said: “As the change will start when the rules come into force, it is important that small businesses have clarity around exactly which types of contracts will be affected.
“The FSB agrees with government’s stance that invoice financing should never be used as an excuse for late payment.”
Andy Brooks, managing director and chartered financial planner at Cambridgeshire-based Brooks Wealth, said: “We need to invest in smaller businesses otherwise the economy will not grow, and a lot of that comes through finance.
“I think banks are a bit more reticent about lending nowadays.
“There are other options, such as Ssas loan backs, which are a bit more relevant to financial advisers, that are currently underused but potentially very relevant.”