In recent times, there’s been what can only be described as a huge sea change in the way people think about financing recurring payments such as VAT.
Whilst many businesses had previously eschewed the idea of financing such costs – seeing it as an option that only struggling businesses would consider, attitudes towards finance have changed, with companies now looking for ways to spread their cash flow and manage their money more efficiently.
This shift has come about not only due to pressures with regards to VAT and Tax payments, but also the increasing difficulties businesses have with juggling cash flow. Whilst penalties can be avoided by providing early notification of payment difficulties by the deadline, companies that are late making VAT payments could incur a fine of up to 15% on the outstanding value of the tax due, a considerable sum for smaller businesses to fund from cash flow.
In fact, a penalty like this could also have the potential to push a company so far over the line, it could present issues as they move forward.
But it’s not just a financial issue. If a small firm is forced to deal with a tax or VAT dispute, it can be a time-consuming process, which can then also cause them to detract from the day-to-day running of the business.
It’s also clear that a delay to paying VAT is not necessarily caused by a company’s lack of funds, but more often largely a result of customers simply not paying on time. For many smaller businesses, this is simply the reality of running a business, but it’s certainly avoidable.
Payment delays still dominate the news for businesses, especially those further down the supply chain, with figures suggesting that debtor days are getting longer. Smaller firms are now often forced to wait an average of 72 days to be paid by their customers, causing a knock-on effect on cash flow.
So rather than waiting for the debtors to pay them, more businesses are turning to finance to plug this short-term need.
We’ve seen a marked increase in businesses taking out our VAT loan over the past three years, and last year alone, LDF funded more than £50 million in VAT loans to Britain’s smaller businesses.
People are increasingly embracing the flexibility of loan facilities like these to cover the cost recurring expenditure and to proactively ensure they will not be hit by a fine.
It’s important for business finance providers to drive the message that it’s good practice and good behaviour to be on the front foot in taking charge of your cash flow. Enhanced management of peaks and troughs in activity can provide businesses with a sound foundation for running the rest of their business. It simply doesn’t make good sense to spend valuable time chasing debtors and worrying about whether the business can pay the VAT on time, when they can achieve a fast and fuss-free option through financing it and allowing business owners and Directors to focus on running a successful business.
By thinking about cash management more proactively, businesses can be well prepared for these recurring payments, and ultimately improve their entire business proposition.