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Well the new year has only just started and already we have seen a VAT increase. While we have all been aware of this for some time I wonder how many businesses are ready for this?

There are implications for businesses both in terms of administration and also in terms of cashflow.  Businesses across the UK will be looking at adjusting invoices to reflect the VAT increase and in the retail sector the VAT inclusive prices need changing on everything.

There is however a cashflow issue that is caused by the increase. Businesses will typically be collecting in invoices with a VAT rate of 17.5% but will be paying out on invoices at a VAT rate of 20% if their credit management is not up to scratch.

If cashflow is expected to be an issue in 2011 for whatever reason it is worth being proactive about it. Establishing relationships with suitable funders such as invoice factoring companies is worth doing well in advance of cash flow becoming a major issue. It allows you time to source the right facility but also gives lenders comfort that you know what is going on in your business.

Businesses should also ensure that any cash flow forecasts are updated accordingly to avoid any unexpected surprises.

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