Cash Flow & Tax Debt When Financing Your Business

Many accountants have previously instructed their clients to enter into an ATO arrangement, as it can be a relatively cheap form of finance. The added benefit of this debt arrangement is that it ensures the impact on cash flow is minimal on the client.

 What’s the result of this arrangement? 

Unfortunately, opting for an arrangement with ATO isn’t always a smart choice for businesses. The unintended consequence of choosing this option is that the client can later struggle to receive finance if they have a visible ATO debt on their balance sheet. Many funders will be cautious, or not work with a business at all, if they see a tax debt like this.  It is also worth noting that businesses with a tax debt of over $10k will have this recorded against their credit file so funders will have access to this information by performing a simple credit check.

This means that while the finance may be cheap, it could stop a client from accessing the much-needed funds to purchase new equipment and further grow their business. The restriction on purchasing new equipment could also mean lost revenue, or an inability to reduce other costs that would far exceed the interest charged by the ATO.

How can you better finance tax debt?

It is possible to finance a tax debt using traditional working capital solutions such as an overdraft. Other methods of funding this debt can include various fintech offerings. Despite these being more expensive than the ATO and traditional lenders, it is usually worth considering. It ensures that funders are able to appropriately lend to a business as the need for equipment arises, which means they are able to fulfil contracts or reduce costs and therefore increase the profitability of their business.

If you are concerned about your business’ debts and cash flow and would like to know more about ATO arrangements and financing your equipment, get in touch with Atlas Equipment Finance. Our team is able to provide you with tailored guidance on your business’s growth. Speak to one of our experienced team members by calling 1300 731 131.