Helping hands to keep cash flowing

As research reveals that nearly a third of local businesses have witnessed an increase in late payment, a Southampton business adviser is warning that in today's banking crisis this phenomenon poses a potentially critical risk to business.

Alan Williams, managing director of accountancy firm HWB, says the findings of the research from Business Link, which looked at the experience of Hampshire and Isle of Wight businesses, is reflected in the reality of HWB's work at the coalface.

"Cash flow is always the lifeblood of a business and this late payment squeeze is being compounded by the tightening of available bank funding and a lack of payment flexibility from suppliers who are also feeling the pressure," says Alan.  "A squeeze on all fronts can then become a crush and as business advisers we have seen this definite trend emerging.

"But there is help out there for companies who access it quickly before a niggling problem becomes a fatal one.  But when you're preoccupied with the day-to-day running of a business it can be difficult to find time to sift through information and decide which steps to take and when.

"Many businesses fail to reclaim money which is owed to them and don't take advantage of measures specifically designed to ease their cash flow. Sound professional advice provides appropriate pointers in the right direction and makes a real difference when it comes to getting the most from tax breaks and payment strategies," he says.

Helping hands available to SMEs include:

The Business Payment Support Service, which has assisted more than a million businesses since November 2008 by agreeing affordable arrangements for the payment of corporation tax, national insurance and VAT.

Spreading payment of business rate inflation increases for 2009-2010 over three years.  Business rates are adjusted each April in line with the Retail Prices Index (RPI) for the previous September. Inflation was running at 5% in September 2008 making this year's increase particularly steep. Billing authorities are writing to businesses over the coming weeks offering the option to pay a 2% increase in 2009/10 and make up the remaining 3% in the following two years. In the meantime business rates should be paid as normal.

Government-funded trade credit insurance top-ups for all sizes of business with trade credit insurance whole turnover policies that have had the value of their cover to a specific buyer reduced by their insurance provider. The additional insurance sits above the existing contract and is administered by the credit insurance provider on behalf of the Government.

Trade credit insurance covers businesses against the risk of bad debt due to the insolvency or protracted default of their buyers and can provide a replacement of working capital when late payments and bad debts impact on cash flow. According to the Association of British Insurers, the total value of claims across the credit insurance sector as a whole reached almost £100 million in the third quarter of 2007 - a year-on-year increase of 58%.

Reclaiming VAT on unpaid sales invoices. VAT paid on bad debts for goods supplied can be reclaimed if the VAT was included on an earlier sales invoice, payment of the relevant debt is more than six months overdue and the invoice(s) have been written off as bad debts in business accounts.  If the rate on a bad debt sale was originally accounted for at 17.5% then it can be reclaimed at this figure.

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