Cashflow management will be a key issue for property developers and construction companies as they start to experience the ripple effect of the collapse of Northern Rock.
While the banks start to consider the diversity of their loan books, companies must monitor their short-term cashflow with precision. It is imperative that businesses do not break banking covenants and are staying within the agreed facilities. Banks are closely monitoring businesses that cannot keep within the preagreed terms.
Firms can improve cashflow by managing the timing of VAT liabilities and payments to HMRC.
Make a request
You may find that you are required to make payment of VAT on a sales invoice to HM Revenue and Customs before you have actually received payment from the customers. In this situation you could consider issuing a request for a payment document rather than an actual tax invoice.
This would result in the VAT liability being crystallised when you receive payment from the customer.
You can manage the timing of your VAT liabilities by changing your VAT accounting period. If you issue your sales invoices at certain times within the VAT accounting period, then you could consider changing the timing so that they are issued at the beginning of an accounting period.
This then allows the maximum time to receive payment before the VAT has to be paid over to HMRC.
Businesses can recover VAT when a valid tax invoice is held, but quite often the purchase invoices need to be approved internally before being posted to the purchase ledger. This can lead to delays in reclaims being made and gives rise to possible mispostings or invoices being lost.
VAT is only one of the means to managing the short-term cashflow position of a business.
Firms can often be unaware of the various schemes available which can assist in cashflow management.
Businesses need to take advantage of all schemes available and ensure business forecasts are monitored carefully.