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How unpaid invoices are affecting outstanding VAT bills

Arcadia Group going into administration

According to the Asset Based Finance Association (ABFA), UK SMEs are currently owed a combined total of £67billion in unpaid invoices. ABFA’s research suggests that British SMES now have to wait longer for their invoices to be paid than they did back in 2009, at the height of the recession. This represents an increase of around 8% on the same figure in 2014 and a huge 36% increase from the same figure in 2011.

These late payments do have a knock on effect, and one of these effects concerns overdue VAT which has reached a collective figure of around £2.6bn from UK companies. VAT is paid on the amount billed to a client, so regardless of whether that client has paid their invoices or not, VAT will still be expected to be paid. This is having a drastic effect of a company’s cash flow as VAT bills are due despite invoices not being paid.

Our Managing Director Richard Simms comments: “Unpaid invoices and large VAT bills are something we regularly see in companies struggling with insolvency. We would encourage SMEs to seek payment promptly to ensure there is minimal dip in their cash flow. We would also encourage SMEs to complete a credit check on their customers to ensure that their customers are in a position themselves to be able to pay the invoice on time.”

According to ABFA, the average length of time that an SME has to wait for its invoices to be paid stands at around 72 days which means that a lack of cash flow during this time is very apparent among companies. The lending option, invoice finance, is apparently playing a crucial role for SMEs across the country. Invoice financing is where a third party agrees to buy your unpaid invoices for a fee. This enables companies to get their hands on some much needed funds in order to keep on top of their own bills; including VAT much earlier than if they were to wait for their customers to pay their invoices.

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