VAT rise could put pressure on smaller firms

25th January 2011

As many as one in three of small businesses will struggle to cope with the recent VAT rise, a new survey has claimed.

A study by Aldermore, a new bank, has suggested that a third of small firms will require additional funds in order to offset the knock-on effects of the VAT hike to 20 per cent.

The concern is that business customers will hold off paying invoices so harming supplier cashflow.

Some firms may have to use working capital in order to make good the shortfall.

Philip Monks, the chief executive of Aldermore, said: "Late payment of invoices is already a serious concern for many SMEs and the prime cause of their cashflow problems.

"The temptation for clients of SMEs to sit on invoices longer to shore up their own cashflow in response to the VAT rise will be hard to resist."