Category: Cash Flow

Why do we need invoice finance?

Pay up.

73% of UK SME’s have experienced late payment in the last 12 months and on average are paid 41 days later than the terms agreed.

This is despite moves to try to improve things like the Prompt Payment Code

The Prompt Payment Code (PPC) aims to improve the supply chain cash flow for UK firms by tackling the issue of late payment.

The Code is sponsored, hosted and administered by the Institute of Credit Management (ICM) on behalf of the Department of Business Innovation and Skills (BIS).

Code signatories undertake to:

pay suppliers on time

  • within the terms agreed at the outset of the contract
  • without attempting to change payment terms retrospectively
  • without changing practice on length of payment for smaller companies on unreasonable grounds

give clear guidance to suppliers

  • providing suppliers with clear and easily accessible guidance on payment procedures
  • ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
  • advising them promptly if there is any reason why an invoice will not be paid to the agreed terms

encourage good practice

  • by requesting that lead suppliers encourage adoption of the code throughout their own supply chains

The Prompt Payment Code has the backing of the UK Government, the British Chamber of Commerce (BCC), the Confederation of British Industry (CBI), the Forum of Private Business (FPB), The Federation of Small Business (FSB) and the institute of Directors (IoD).

Financial software firm XERO issued the research, which revealed that:

  • Over half (52%) of UK business owners worry about unpaid invoices
  • Worst affected regions found to be London where businesses spend 1.5 days per month chasing payments, followed by 1.3 days by businesses in Wales
  • The business sector spending the most time chasing payments was found to be HR (3 days), followed by IT & Telecoms (1.8 days) and Manufacturing & Utilities (1.7 days)

It also showed that the two main reasons cited by small business as being the causes of late payments were that their customers were also waiting for payments themselves (32%), as well as a lack of consistency on payment terms (27%).

For SME’s understanding their Cash Cycle is critical as lack of cash flow will kill your business, here is a example of how to calculate the cash cycle

cash-cycle

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000 per year, you will need cash of £136,986. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.

CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

But Credit Management may not be enough on its own, perhaps Invoice Finance might help?

Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.

  • Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
  • Invoice discounting is suitable for business with an established credit control department.
  • Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
  • Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.

In August 2013, the UK Government became a Buyer of invoices on the MarketInvoice Platform, investing directly in UK SMEs looking to access working capital and grow their businesses.

How does it work?

Any company can use MarketInvoice provided its sells goods or services to other large businesses.

Its a ‘pay as you go’ service.

Companies are vetted and the invoice must be to a large corporate not to other SME’s.

Its confidential so your customer will not know you have used MarketInvoice, if the customer doesn’t pay you will have to refund the investor.

There are other similar products on the market from other providers so its worth considering the options available.

Don’t let lack of cash flow kill your business!

steve@bicknells.net

How long do you spend chasing payment? 10% of your day?

https://stevejbicknell.com/wp-content/uploads/2014/05/debt-collection.jpg

Financial software firm XERO issued the research, which revealed that:

  • Over half (52%) of UK business owners worry about unpaid invoices
  • Worst affected regions found to be London where businesses spend 1.5 days per month chasing payments, followed by 1.3 days by businesses in Wales
  • The business sector spending the most time chasing payments was found to be HR (3 days), followed by IT & Telecoms (1.8 days) and Manufacturing & Utilities (1.7 days)

It also showed that the two main reasons cited by small business as being the causes of late payments were that their customers were also waiting for payments themselves (32%), as well as a lack of consistency on payment terms (27%). In response to the growing concern over late payment of invoices, the company has produced a music video to showcase the frustrations felt by ordinary small firms when faced with late payers.

To get paid faster why not include a pay now button on your invoice

http://www.sagepay.co.uk/our-payment-solutions/get-paid-faster

Paypalme

https://www.paypal.com/paypalme/grab

steve@bicknells.net

 

The Tax Advantages of Commercial Fit Out

Interior construction site

When you carryout out a refurbishment or Fit Out of your business premises you will be entitled to Capital Allowances.

Here is quick summary of the main types of allowance.

Business Premises Renovation Allowances

BPRA gives incentives to bring back into business use derelict or business properties that have been unused for at least one year. It gives an allowance of 100% for certain expenditure you incur when converting or renovating unused business premises in a disadvantaged area.

BPRA started on 11 April 2007 and ends on:

• 31 March 2017 for Corporation Tax
• 5 April 2017 for Income Tax

To qualify for BPRA, you must incur qualifying expenditure.

Qualifying expenditure is capital expenditure you incurred when you:

• convert a qualifying building into qualifying business premises
• renovate a qualifying building that is, or will be, a qualifying business premises
• repair qualifying business premises

Capital Allowances

Integral features

Integral features are:

• lifts, escalators and moving walkways
• space and water heating systems
• air-conditioning and air cooling systems
• hot and cold water systems (but not toilet and kitchen facilities)
• electrical systems, including lighting systems
• external solar shading

Fixtures

You can claim for fixtures, eg:

• fitted kitchens
• bathroom suites
• fire alarm and CCTV systems

You can claim if you rent or own the building, but only the person who bought the item can claim.

Annual Investment Allowance

The Allowance is set at up to £200,000 from January 2016

You can only claim AIA in the period you bought the item.

The date you bought it is:

• when you signed the contract, if payment is due within less than 4 months
• when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you haven’t made yet when you start using the item. You can’t claim on the interest payments.

If you don’t want to claim the full cost, eg you have low profits, you can claim part of the cost as AIA and part using writing down allowances. You can do this at any time as long as you still own the item.

If your business closes, you can’t claim AIA for items bought in the final accounting period.

Enhanced Capital Allowance

100% capital allowances can be obtained for expenditure on environmentally beneficial technology. This enables businesses to write off the whole capital cost against their profits in the year in which the expenditure is incurred and therefore to obtain valuable tax relief which can improve cashflow.

What doesn’t count as plant and machinery

You can’t claim capital allowances on:

• things you lease – you must own them
• buildings, including doors, gates, shutters, mains water and gas systems
• land and structures, eg bridges, roads, docks
• items used only for business entertainment, eg a yacht or karaoke machine

New Tenant – Lease Incentives

New Tenants may get incentives such as rent free periods or reverse premiums. The new accounting rules (FRS102) mean that these incentives are spread over the life of the lease not taken over the period to the first rent review. Spreading these savings out will mean that tenants get a tax advantage as the gain will be less at the beginning of their lease.

Fit Out Finance

Generally funding fit outs is an issue due to the nature of the security.

However there are lender who can provide funding, for example http://www.fitoutfinance.uk/

As the name suggests, Fit-Out Finance is dedicated to funding fit-outs of business premises, including:

• Head Office.
• Warehousing.
• Fast food outlets.
• Restaurants/retail premises.
• Showrooms.

Using a blend of hire purchase, lease, unsecured loan and other facilities where appropriate, we are able to fund not just the tangibles, but all manner of tertiary work, from survey through to painting and plumbing.

As previously noted HP and Loans are suitable for tax relief through Capital Allowances.

Here are a couple of examples of how funding can work.

Start Up Fast Food Outlet

Well researched & professional, our client was buying into a well-respected fast food franchise.

Their bank had supported the franchise purchase, but there was a further £75,000 required to fit the premises to franchisor specification.
With the customer’s background and a solid franchise, arranging leasing on equipment was fairly straight forward.

That left a £30,000 shortfall on less tangible works – as there were 2 owners in the business, we were able to secure Start-Up loans to fund the shortfall

A Warehouse

The client was a well established, profitable hirer of electrical equipment. Despite being profitable, the business was highly seasonal and therefore cashflow fluctuated wildly.
Most of their funding was done under their roof, being shared between the bank, and the bank’s own finance company, who handled their hire stock.
However, when they approached the finance company, they were confidently informed that racking and mezzanine floors couldn’t be financed; hence they ploughed on, pouring valuable cash into fixed assets.

They had spent over £100,000 on racking etc and were struggling with cashflow to complete the project.

The Funder was able to:
• Release the full value of the assets they had paid for.
• Provide ongoing further funding for a mixed bundle of assets, ranging from a mezzanine floor to bikes used to move around the facility efficiently.
• Provide a £35K term loan to cover intangible costs.

steve@bicknells.net

Contact Us

Do you make it easy for clients to pay you? or have to chase payment!

paypal

Slow payment is major issue for small business.

Research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)

To get paid faster why not include a pay now button on your invoice

http://www.sagepay.co.uk/our-payment-solutions/get-paid-faster

Paypalme

https://www.paypal.com/paypalme/grab

https://stevejbicknell.com/wp-content/uploads/2014/05/debt-collection.jpg

steve@bicknells.net

Contact Us

 

Are Gift Vouchers a waste of money?

Christmas Gifts

As much as £300 million worth of gift vouchers bought in 2014 were unspent according to research by the UK Gift Card and Voucher Association (UKGCVA).

Every year 6% of vouchers bought by consumers go unused as they lay forgotten in people’s wallets and drawers.

In 2013 some £2.5 billion worth of gift cards and vouchers were sold in UK retail stores as gifts and £2.25 billion were purchased by businesses as staff or customer rewards. Meanwhile a UKGCVA report shows that in the third quarter of 2014, the gift card and voucher industry grew by 10%. The UK industry as a whole is now worth £5 billion.

Modern technology may provide the answer as digital vouchers, such as those that can be loaded on to a mobile phone, are becoming more popular according to the UKGCVA, and may be more likely to be used because the recipient does not have to remember to take a physical piece of plastic or paper with them to the shops.

Unfortunately, vouchers are a taxable benefit in kind…

Vouchers that can be exchanged for cash

These vouchers count as earnings, regardless of who gives the voucher to your employee, so you’ll need to:

  • add their value to the employee’s other earnings
  • deduct and pay PAYE tax and NICs through your payroll
  • report any NICs for the pay period when the last payment is made in the same period

Vouchers exchangeable for goods and services only (non-cash vouchers)

Add the cost of the vouchers to the employee’s earnings – unless they’re luncheon or childcare vouchers. For these, use the voucher’s face value.

Non-cash vouchers that are exempt from NICs

These include vouchers for:

  • travel between home and work on a work bus
  • social functions, such as a Christmas party, up to £150 per head
  • childcare vouchers up to a certain amount

Click to access CWG2__2015_.pdf

Generally, there is no VAT on purchased gift vouchers as they are treated as cash equivalents, its only when they are used to purchase items that VAT needs to be accounted for.

But some vouchers can be subject to VAT as explained in this UKGVCA fact sheet

steve@bicknells.net

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Would you use P2P Currency Exchange?

Currencies

A P2P platform simply brings together people with complementary currency exchange requirements. So if User A wants to exchange dollars for euros and User B is looking to exchange euros for dollars, they can do so over a P2P currency exchange. By harnessing the power of the crowd, users are thus able to obtain much better exchange rates than they would get through traditional currency exchange mechanisms.

CurrencyFair Ltd, for instance, claims that it can save up to 90% on international currency transfer fees. While £2,000 transferred through a typical bank could cost as much as £100 (£40 in international transfer fees and £60 in exchange rate margin), the same amount sent through CurrencyFair would only cost about £9 (a fixed £3 transfer fee plus £6 exchange rate margin). CurrencyFair charges an average of 0.35% of the amount exchanged as its margin, while TransferWise Ltd charges 0.5%.

The mechanism for P2P currency exchange is straightforward. A client opens an account with a P2P exchange and deposits money into the account. He or she then converts the money into the desired currency by “matching” with other clients on the P2P exchange. The foreign currency is then transferred to an overseas bank account nominated by the client.

Some P2P companies are controlled by FCA rules for example Midpoint and Transferwise whilst other are covered by EU rules such as Currency Fair, so you might want to check who regulates the P2P that you choose.

It can take up to 48 hours to match a deal which could be an issue in some cases.

The cost is definitely cheaper but in addition on large deals you may be able to negotiate further savings.

steve@bicknells.net

Do you qualify for £3,000 towards faster broadband?

e commerce

Broadband Connection Vouchers are being delivered by the 22 SuperConnected Cities, Each local scheme is designed to meet local needs while helping local businesses to grow and develop.

You only need to send us 1 quote as part of your application process, although you may want to talk to a number of suppliers to get the best deal for your business.

On 3 December, the Chancellor announced that the Government will make up to £40m available from April 2015 to March 2016 to support more cities administer The Broadband Connection Voucher Scheme.

Connection Vouchers will be made available on a first come, first served basis.

The current Broadband Connection Vouchers Scheme closes on 31 March 2015.

Check you eligibility https://www.connectionvouchers.co.uk/

steve@bicknells.net

Growth Vouchers – closing soon!

Cash

Apply before 31st March to get up to £2,000 from the Government for professional business advice

• Growth Vouchers are a grant from the Government to help businesses like yours get business advice from accredited advisers.

• The voucher match-funds your investment in professional advice for your business so you could get a grant of up to £2,000 towards the cost of the advice.

You can use the voucher to get advice on:

• Finance – and how to manage your cash flow better
• Recruiting staff – how to develop their skills
• Improving management and leadership skills
• Marketing – attracting and keeping customers
• Technology – and how your business can make the most of it.

https://smallbusinessgrowthvouchers.service.gov.uk/eligibility-check/?em2

steve@bicknells.net

How do you create a Tronc?

Tip jar

Typically, an employee is appointed to administer the tronc and is usually referred to as the troncmaster. HMRC does not prescribe who the troncmaster should be.

Frank owns a pub and restaurant. Tips paid by cheque, debit and credit card are all passed to Sharon, the troncmaster, who has been appointed by Frank. Sharon operates PAYE on the tips that she distributes. A staff committee decides on the allocation and Frank has nothing to do with this.

Even though Frank has appointed Sharon as troncmaster he has played no part, directly or indirectly, in the allocation of the tips because he is not involved in determining who should receive tips and how much each employee should receive. In these circumstances, no NICs will be due on the tips received by the tronc members. Example from NIM02942

Y0u may also find my blog helpful

How Troncmasters can keep your tips NI and VAT Free

The Income Tax (Pay As You Earn) Regulations 2003 require an employer to

  • Notify HMRC of the existence of a tronc created on or after 6 April 2004

And

  • Give the troncmaster’s name (if known)

When you are notified of a tronc you should

  • Confirm that there is an organised arrangement for sharing tips and determine
    • How the tronc receives monies (for example employees paying in cash tips or an employer paying in credit card tips)
    • Who holds the tronc monies and how (for example, is there a tronc bank account and if so who operates it?)
    • On what basis are distributions made from the tronc and who decides that basis
    • Which employees are tronc members
    • Whether the person said to be the troncmaster accepts and understands the role (including the obligation to operate PAYE)

If you are satisfied that there is a tronc for PAYE purposes (bear in mind that a business could have more than one tronc, for example a hotel could have separate troncs for restaurant staff and housekeeping staff and each should be dealt with separately)

  • Arrange for a PAYE scheme to be set up in the name of the troncmaster. Further information can be found in PAYE20160

steve@bicknells.net

TOGC issues on Business Acquisitions

Businessman hand touching M & A - merger & acquisition concept

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

Problem areas:

  1. Gap in trading – for TOGC to apply there must be no significant gap in trading between the sale and purchase
  2. VAT registration – If the vendor is VAT registered, there can only be a VAT-free TOGC if the purchaser is registered at or before the transfer
  3. Buying part of a business – the part being bought must be capable of separate operation
  4. A series of sales – it may not be possible for one of the parties to carry on the trade
  5. Staged Sales – As long as the overall result is that of business transfer these should qualify for TOGC

steve@bicknells.net