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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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.
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.