VAT finance for manufacturers

How cash moves in manufacturing

Larger customers may expect extended payment terms, and equipment purchases or maintenance can add further demands on cash.

Why VAT can put pressure on working capital

A VAT payment can fall due while a significant amount of cash is tied up in stock and debtors.

Paying it in full may reduce the cash available to buy materials for the next production run.

An illustrative example

A manufacturer's VAT liability for the quarter is £72,000. It is about to place a large raw materials order ahead of a confirmed contract.

Financing £30,000 of the VAT bill may allow the materials order to proceed without stretching the bank balance. Figures are illustrative and finance involves an additional cost.

How VAT finance may work

The business applies for finance for all or part of the VAT liability. If approved, the funds are used towards the VAT payment and the business repays the finance provider over the agreed term.

Things to consider

• Stock levels and how quickly they convert into cash
• Customer payment terms and debtor days
• Planned equipment spending, which may be better suited to asset finance
• Seasonal patterns in production and sales

Eligibility depends on the business and the finance provider, not on its sector alone.