Stage Payments & VAT Deferments

Machine finance with stage payments required by machine suppliers present a problem.  Some lenders have been prepared to finance stage payments in the past but now it is very unlikely.  The problem for the lender is that during the stage payment period there is no machine security in place.  In the event of default the lender is left with no tangible security.  Furthermore if the machine supplier goes out of business then there is unsecured borrowing for the lender and no machine for the customer but still with the liability to repay the lender.

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a)  It will be easier to resolve before placing an order with the machine supplier.  At this point you have a stronger negotiating position.  You could then try and negotiate a small initial deposit, say 10% or 20%.  The balance can then be paid by the lender upon delivery of the machine.

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However if the supplier requires a larger initial deposit and maybe further payments before delivery then you will need to finance these yourself.  A Sale & Hire Purchase Back facility can then be used and your deposit and any further payments can be refunded back to you upon delivery of the machine.  The outstanding balance can then be paid direct to the supplier and the final Hire Purchase agreement completed.

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b)  If you do not have the cash flow to cover the stage payments then we can arrange machine refinance to finance the stage payments.  Alternatively we can arrange a Funding Circle Business Loan to cover the stage payments.

For most machine finance agreements Premier Business Finance recommend Hire Purchase.  This is often the best way for manufacturers to finance new and used machines.  However there is the impact on cash flow since the whole of the VAT on the whole cost of the machine has to be paid before or at delivery of the machine.  This is in addition to any other deposit required by the underwriter.  Therefore with a machine costing £50,000.00 + VAT, if a 10% + VAT deposit is required then £5,000.00 (10%) + £10,000.00 (20%) = £15,000.00 will be required in total.

The £10,000.00 VAT can be reclaimed when you complete your next VAT return but this may not be for a period of up to 3 months.  Therefore you have a period of up to 3 months where you have to carry the cost of the £10,000.00 VAT which can be difficult for many manufacturers.  There are a couple of ways this problem can be overcome.

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a)  Your Machine Supplier

Covering the cost of VAT is a common problem and many machine suppliers will help by taking a post dated cheque for the VAT if it means it they obtain an order.  Naturally it is best to raise the subject prior to placing the order at a time when you have a stronger negotiating position.

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b)  Machine Finance VAT Deferment Facility

Machine finance lenders are often prepared to approve a VAT Deferment for up to 3 months.  This means that instead of paying the VAT at or before delivery of the machine, it is deferred for up to 3 months.  Therefore you do not have to pay the VAT until after you have already claimed it back using your VAT return.  The VAT is then usually collected by direct debit together with a normal monthly installment.