My Lords, I must declare, as I did at Second Reading, that I am the chairman and a shareholder of a graduate recruitment company called Instant Impact Ltd. I also have to declare that this company was founded by my son and a friend, who got to know each other when they were at Cambridge University. I know that this may have echoes of Second Reading about it, but I want to give an example of the sorts of issues that we have encountered. I think that they point towards financing in general and invoice discounting in particular. I shall not detain noble Lords for too long.
Instant Impact has been very successful. After four years of operation, its projected billing for this year is £1 million and its employees now total 22. We should have many more companies like this in the UK—and if we did, maybe some of our problems would be over.
However, success has brought its own issues, and the trickiest of all has been cash flow to support the rapid growth of such a company. In short, we could see that if we continued to grow so rapidly, it would put a severe strain on our bank balance. Therefore, as chairman, I was deputed to find new sources of finance. I was happy to do so but I was even happier for another reason: we talk a lot about small business but, to be honest, it is a long time since I have been in the front line, so it was pretty good to go out there and see what it was like to raise additional funding for a company that is doing quite well.
Eventually, we were successful in that one of the new challenger banks—the noble Lord, Lord Flight, is the chairman of Metro Bank, so I must give him my thanks—offered a superb invoice discounting facility, but not before we endured the lethargy and inflexibility of the traditional high street banks. Of course, as a company we also had to step up our game in credit control and debt collection, and we managed to get an infusion of equity finance.
The high street banks were simply awful. Do not believe for one moment that they have changed. One has the motto, “One for two”: one acceptance for every two rejections. I cannot believe that that is true.
All they want is what they have always wanted—bricks and mortar security and personal guarantees. That is not much help to a service business set up by two young men with no assets apart from the business itself.
I went to see the very clearing bank with which I have dealt since I first started working in 1959. It knows my history and my successes inside out. A very senior manager, when I explained our requirements to her, said to me—I am not exaggerating—“Well, it looks like daddy will have to give a personal guarantee, doesn’t it?”. My answer was unprintable and my words should have no place in the august annals of Hansard. I told her that daddy has never given a personal guarantee and certainly did not intend to do so now, or words to that effect.
I have to say, “How dare they?”. After all the banks have been through and after we as a nation have effectively bailed all of them out, it seems that nothing has changed. They tell us that they are in business to support small companies but, when push comes to shove, they revert to their old ways. Too many small businesses when rejected by their own high street bank simply give up. They are intimidated. That is why the new sources of alternative finance—the challenger banks and the peer-to-peer lenders—must continue to be encouraged.
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That brings us neatly on to the amendment, which deals with invoice financing. As I said, this type of finance is crucial to many growing businesses. According to the Asset Based Finance Association, their members’ book of invoice financing equals just over £19 billion, as of this past September. Their number of clients exceeds 43,000, and the turnover if those clients amounts to £215 billion. Clearly, this financial sector is crucial to oiling the wheels of UK plc, as I know only too well. However, there are areas that restrict the growth of this sector, particularly those restrictions forced on small businesses that ban them from assigning their receivables.
The amendment removes from the clause entitled “Powers to invalidate restrictive terms of contract payments” the words,
“has effect in relation to persons of a prescribed description only for such purposes as may be prescribed”.
It is a probing amendment to see how widely the Government envision the changes in this clause actually operating.
In Committee in the other place, the Minister said:
“In addition, for some financial services contracts it is important to maintain the ability to prevent assignment of rights under that contract—for example, a business may want to ensure that it deals directly with its own bank in respect of payments due under a loan agreement or other financial service contract”.—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 21/10/14; col. 142.]
That clause will be used to define these contracts. This amendment therefore probes to which businesses the regulations laid out by the Secretary of State will apply, and to which they will not. This is an important question, because we believe that factoring or invoice financing can be a useful way in which small businesses can raise finance.
In the earlier group concerning an annual report on government policies on small business, I laid out the facts around access to finance and the difficulty that many small businesses have had. Throughout this Parliament, schemes designed to support them have had mixed success. Factoring or invoice financing pays a set percentage of a contract in exchange for collecting the money from customers and can obviously help a great deal with the cash flow problems that small businesses face. Given that it can be beneficial, we ask the Minister to provide a little more detail on the extent to which she envisions this clause opening up to business.
The Federation of Small Businesses has also produced work on other kinds of factoring found elsewhere in the world. It pointed to the Swiss WIR. It was founded in 1934 and represents a kind of mutual, whereby its 60,000 members create mutual liquidity using the money owed to them, complete with a complementary currency, which is accessed to a greater extent during recessions and thereby provides countercyclical support. It would be good to hear the Minister’s views on such a structure and whether she believes that it is possible to create one under the provisions of the Bill. It is certainly an interesting idea.
Finally, all this is intimately linked with a problem that we are soon to discuss—late payment of money owed to small businesses and the effect it has on liquidity. I hope that the Minister will see our improvements to that part of the Bill as part of a package that would improve credit conditions and cash flow circumstances for small businesses, and ease the difficulties that many of them have recently experienced. I beg to move.