Tax and technology: can new solutions boost financial flexibility?

Amidst an uncertain economic backdrop, finance leaders need to keep as much money on the corporate balance sheet as possible. Yet B2B payments represent a major headache — especially large outgoings like tax. The UK’s 100 biggest companies contributed a staggering £84bn in tax in 2017/18.

This is where new approaches are needed to optimise working capital whilst minimising the risk of late payment fees. Invapay offers an innovative way to use commercial credit lines to pay suppliers like HMRC that don’t accept cards or add a hefty surcharge to the payment for accepting cards.

A taxing problem

Although the UK’s headline corporation tax rate is the lowest of any G7 country, successful businesses still have a significant tax burden. The effective tax rate of 20.5% can jump as high as 42% for the banking industry, for example.  Along with utility bills and commercial rent, VAT and PAYE represent a major regular outgoing for finance bosses to manage.

The biggest challenge is to optimise the working capital position of the firm. As non-negotiable tax payments must be made on time, working capital deficiencies can cause knock-on problems for firms, which could lead to:

Reduced expansion – for example into new markets or adjacent sectors.

A hiring freeze – which could impact the organisation’s ability to grow and attract the brightest and bestcandidates.

Late payments to other suppliers – as finance teams try to balance the books. This could sour relations with the supply chain and ultimately impact the quality of service end customers receive.

Reduced expenditure on acquisitions or research and development. This will also restrict the organisation’s ability to grow and succeed.

Using commercial credit lines is one useful strategy for preserving liquidity and financial flexibility, ensuring suppliers are paid on time whilst maximising Days Payable Outstanding (DPO). However, what if that supplier doesn’t accept credit cards? In January 2018, the HMRC changed their rules around accepting card payments.  At this time, they also continued to surcharge commercial card payments at a range of rates, varying from 1.5 to 2.4% depending on the type of card used.  This range of charging is much higher than the average cost of funds to a large corporate.  Invapay works with issuing and acquiring partners to achieve a rate, which is equivalent, or below the average cost of funds. This enables corporates to use their commercial card credit line but deliver payment to HMRC by Electronic Funds Transfer at a competitive cost.

Enter Invapay

The answer lies with an innovative new service from Optal using its Invapay product. Invapay removes the need for supplier acceptance of credit cards. Finance departments simply pay Invapay by credit card and we then pay the supplier by bank from our client safeguarded account. It’s a regulated funding source designed to extend DPO for the buyer whilst ensuring suppliers including the tax office are paid on time.

By optimising their working capital in this way, organisations ensure they have the funds to hand to invest in expansion, new staff and R&D whilst ensuring that key payments are made on time. For banking providers, it offers a great way to differentiate in what is a highly competitive market, while the protection of working capital enables bank clients to expand and grow their businesses by reducing cash flow constraints.

It’s all about removing friction, enhancing flexibility and streamlining payment processes in a B2B payments space historically underserved by digital innovation. To find out more on how Invapay can help your business, download our latest eGuide, How Commercial Credit Can Create Smart Working Capital.

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About Optal Ltd

Optal is re-inventing how payment processes work across complex industries. By stripping payment processes of their customary inefficiency, Optal helps companies boost profitability across a growing number of sectors around the world.

Optal issues Mastercard branded payment products, driving its focus on developing and bringing to market, game-changing payment solutions. Optal’s working capital solution, Invapay, turns underutilised credit lines into a dynamic resource to manage cashflow.

“Invapay” and “Invapay solution” means Invapay Payment Solutions Limited, a private limited company in England and Wales, authorised and regulated as an Authorised Payment Institution by the Financial Conduct Authority under the Payment Services Regulations 2017 which is a wholly-owned subsidiary of Optal Limited.

Talk to us to discover how Optal can add value to your organisation.

General Enquiries: +44 (0)2038 924 928
Invapay Technical Support: +44 (0)1992 500 589

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