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Business finance can take the VAT out of hell for SMEs

The UK economy rose by a solid 0.5% in the final quarter of 2015 and has been growing steadily following a small dip at the end of 2012. However the news is of little consolation to businesses that continue to face sleepless nights over large VAT bills and unpaid invoices which are endangering their existence.

In-between the green shoots of economic recovery, the reality is that business spending has fallen at its sharpest pace for two years and the problem of late payment is getting worse. The numbers below make for sobering reading and leave SMEs struggling to invest for growth and cover the costs of office rent, utility bills and even staff salaries.

According to research by the Asset Based Finance Association (ABFA), UK SMEs are currently owed £67 billion and on average have to wait 72 days for their invoices to be paid. To put this into perspective, these delays are longer than SMEs were experiencing at the height of the recession in 2009. A survey by Zurich has also revealed that one in five are owed more than £25,000, one in ten more than £100,000 while over 43,000 SMEs have unpaid invoices totaling over £1 million.

Given that businesses have to pay VAT on invoices to HMRC before receiving payment from customers, understandably many have significant concerns about fulfilling their financial obligations. The knock-on effect has led to SMEs seeking to delay payments to HMRC with the volume of overdue VAT reaching £2.58bn in 2015, an increase of 1% compared to 2014.

VAT payments often represent large outgoings for businesses but there are several alternative ways to help relieve the burden of the dreaded quarterly bill. Leading independent finance providers, such as Syscap, provide specialist funding solutions to enable SMEs to spread the cost of their VAT bills over a 3-12 month period.

Businesses can benefit from peace of mind that their monthly outgoings can be fixed and quarterly payments are applied to coincide with HMRC’s payment schedules. Gaining better financial control over working capital places them in a stronger position to plan for growth with the added flexibility of being able to repay their loan early without a penalty should the firm’s circumstances change.

To maintain a competitive advantage, SMEs are also increasingly turning to invoice finance (IF) lending options. IF can be used to support cash flow and release funding for investment by loaning money against unpaid invoices, assisting SMEs to swiftly act and take advantage of market opportunities when they materialise.

The gap to receiving invoice payments and money owing in VAT may be growing wider but it doesn’t have to be this way. Alternative finance solutions can take the VAT out of hell by helping SMEs to unlock the vital funds they need NOW while negating the risks of their customers refusing to pay invoices in a timely manner. In doing so they can embrace the future with confidence today instead of worrying about what may be around the corner tomorrow.

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