Collecting cash on behalf of another business

Collecting cash on behalf of another business

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Hi

We are about to change our relationship with a supplier and they will then be supplying their services directly to our clients, invoicing those clients directly and then paying us a monthly fee for 12 months. Effectively we are selling this part of the business to them but they dont have the cash to pay us up front.

However, we are not entirely confident that they will continue paying us as cashflow is often an issue for them (they will be making a much larger margin on the business we are selling to them, so long term it will enhance their business) and want to build in a safety net for ourselves.

One of the directors has queried whether or not we could collect the cash from their invoices to our clients, keep back our "cut" and then hand over the remaining cash to the supplier. The invoices would be issued by the supplier, in their name, but the clients would be asked to continue paying the cash over to us until such time as we had received all our fee money

This isnt sitting too well with me, but I'm not sure why. The supplier would agree to this arrangement and we would have legal documents in place to that effect but I still feel uneasy about the whole thing.

Is there anything we would need to be wary about with this?

Many thanks

Replies (4)

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paddle steamer
By DJKL
02nd Mar 2015 16:31

Seems no different from a letting agent

It seems no different from a letting agent collecting rent for a landlord re tax/vat implications, your company is not making the supply. It would probably be best to use a distinct bank account for the arrangement and you would have to make it clear to the end clients that you had no legal liability regarding the supply of services. 

If I were an end customer I would want certainty that by paying you I am discharging my liability to the other company, but this can no doubt be dealt with by an express statement  in writing to that effect signed by both your company and the supplying company.

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Replying to SXGuy:
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By brucklay
02nd Mar 2015 16:35

Thanks

Many thanks for the reply

I was only concerned that there would be tax/VAT implications so as long as we are in the clearwith that, getting the legalities right shouldnt be a problem

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By shaun king
02nd Mar 2015 16:38

OOPs

You are making a supply to your supplier for which you are retaining a percentage of the monies received. So you will need to invoice your supplier for your charges plus VAT.

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Replying to Matrix:
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By brucklay
02nd Mar 2015 16:52

Thanks Shaun

 

Yes, agreed, we would be raising an invoice for this. I wanted to make sure that there were no tax implications for us collecting cash from the clients who were no longer our clients. We also have a separate bank account we can use for these monies (it used to be a client account when we sold insurance products and needed to keep the cash clients had paid over for premiums which had not yet been paid to the insurers) so that shouldnt be a problem either

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