VAT finance for technology companies

How cash moves in technology

Where customers are billed annually in advance, VAT on that billing can create a large liability in a single quarter, while the cash is needed throughout the year.

Why VAT can put pressure on working capital

A strong renewal or sales quarter can produce a VAT bill that competes with planned hiring or development spend.

Recurring revenue is predictable, but the timing of VAT on it may not match the timing of costs.

An illustrative example

A software company invoiced most of its annual renewals in one quarter, producing a £55,000 VAT liability while two new hires are starting.

Financing £25,000 could spread that cost across the following months. 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

• How annual and monthly billing affect the size of each VAT return
• Runway and planned hiring
• Whether equity or other funding is already planned
• The total cost of finance against the benefit of keeping cash

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