Vat on Debtors

jakestevens81

Good morning all, I got a quick question for ye, We have a client, Limited Co, who has a Turnover of 1.5M with most of clients being registered business, problem is they have to be their Vat on invoice basis, but may not get paid from client for up to 8 months, which is really effecting their cash flow..... Any suggestions?

petes

Would they not setup credit terms for their customers. Can they not chase the customers for the cash?

jakestevens81

They do but the type of businees that they deal in, it can take a long time to collect the debts, have several thousand customers

Mr Clonfadda

send customers Proforma Invoice originally and then issue actually invoice when paid this is effectively then cash on receipts basis.

jakestevens81

Yeah I thought of the pro-forma invoice or the Request of payment, but are these legal?

Dixie Chick

Yes, you often see at teh end of an invoice

"vat invoice provided upon receipt of payment"

its legit

smcgiff

Dixie Chick wrote: »

its legit

You'd see solicitors doing it a lot.

El Del

jakestevens81 wrote: »

Yeah I thought of the pro-forma invoice or the Request of payment, but are these legal?

Yeah they're legal but you have to be careful with them. Invoices have to be issued within a certain timeframce from when a supply of goods or services is completed, or when a payment is received. Basically, an invoice must be issued within 15 days from the end of the month when the supply is complete or when the payment is received.

Therefore pro-formas or requests for payments are not really an option where goods are supplied.

And for services they can only really be used where there is a continuous supply being made to a particular client over a period of time. This is why you will see solicitors doing it, becuase their services to their clients are usually ongoing over a period of time so that it is difficult to say when the service is complete. However, for client to who a solicitor does a once off job, then the invoice must be issued by the 15th day after the end of month when the service is deemed complete.

Mr. Incognito

You can account for VAT on a cash receipt basis if your turnover is under 1.5 million or 90% is supplied to unregistered individuals.