It isn’t the most headline-worthy of costs, but increased VAT bills are creating major cashflow problems for SMEs. One of the main reasons is late payment. Invoice finance can help business owners manage the burden.

VAT is putting pressure on small business capital because usually companies have to pay the tax when invoicing customers, rather than after payment has been received. As a result, often these businesses have to borrow money to pay the VAT bill. However, securing loans is far from straightforward, with banks welded to their cautious lending strategies. The strain on cash flow is made even greater by the late payment of invoices.

So, tackle late payment and the pressure relating to VAT payment for SMEs will be reduced. Unfortunately, that’s easier said than done. Late payment has long been a major bugbear for small businesses and despite a host of initiatives, the beefed up roll of the small business commissioner and plenty of rhetoric, the issue remains unresolved.

And the impact on cashflow can cause serious problems. New research from YouGov showed that nearly half of the small businesses polled said that the level of control over company spending is one of the biggest challenges they face in 2018.

Furthermore, a new study from the Federation of Small Businesses shows a 4.2% increase in company insolvencies in 2017, to 17,243, with one in seven entrepreneurs expecting to sell, hand-on or close their businesses in the first quarter of 2018. Tellingly, the proportion of SMEs reporting an increase in operating costs is at its highest level for five year. Also, these figures don’t cover the collapse of Carillion and its impact on the business sector.

One way in which small businesses can get some protection against late payment and ease the burden of VAT payments is to integrate alternative finance, and in particular invoice finance, into their financial planning. Invoice finance can help secure payments within the specific payment period without endangering key business relationships.

Broadening the focus, the use of alternative finance is way of raising capital that can safeguard cashflow, and help meet costs, whether related to VAT bills, cybersecurity or new equipment. This is how a small business in Sussex used peer-to-peer lending, through a Worthing based business consultant, to raise the money to buy new equipment.

The year ahead looks set to be another one of uncertainty for small businesses and if they are to survive, and indeed thrive, it is important that owners make use of all the resources available to them, including alternative finance.

To find out more about A&T Business Associates services, contact Tony on 01903 602211 or tony@atbusinessassociates.co.uk.