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OK , so we have discussed the options for making payment to the supplier but what is the best way to pay for the machinery and what are the best finance options?

The majority of foreign suppliers will either invoice in euros or US dollars. The finance company will book the foreign currency to provide an exact exchange rate and use the sterling equivalent on your documentation.

At this point it is worth mentioning that finance companies are not importers and it is either the supplier, their UK agent or the customer to make sure the necessary arrangements in terms of VAT numbers, import duties etc are made with the appropriate import authorities.

Although the  foreign suppliers invoice will have NO VAT as soon as a UK finance company raises either a hire purchase or finance lease document VAT becomes payable. If hire purchase is required all the VAT becomes payable in advance to the finance company. AS with any finance lease facility Vat is only paid on the deposit amount and the remainder of the VAT is paid on the monthly repayments.

However with the correct documentation and structure it is possible to provide a Vat neutral hire purchase deal so no physical payment is actually made. This only works where foreign suppliers and is structured as follows.

Instead of invoicing the finance company, the foreign supplier raises an invoice direct to the customer in euros or whatever the foreign currency maybe. The customer raises an invoice to the finance company for the sterling equivalent and because this is a UK invoice VAT must be applied. The customer will request that the proceeds of the invoice will be paid direct to the  supplier.

The finance company prepare their hire purchase documents and the Vat on the HP doc cancels out the Vat on the customers invoice. By doing the deal in this way the customer in affect becomes the UK agent and is normal practice for a standard agency agreement to entered into before the transaction commences.

Financing imported machinery can be quite a complex issue. Often the supplier will requiring paying up front however the finance company is loathed to release payment before the equipment is delivered to the customers premises.

More often than not a common sense approach can be reached whereby an amount equal to deposit is paid across to the supplier to provide some commitment. Providing the supplier is provided with some form of evidence that a hire purchase or finance lease facility has been agreed this is usually enough to get the machinery on its way. Most UK finance companies will release payment tothe supplier on evidence that the machinery is on UK soil .

To protect the customer a small retention of 10-20% of the net cost of the godds can be withheld until satisfactory installation. If the supplier is unwilling to release the machinery or equipment prior to shipment before receiving payment in full it was once possible for a funder to provide a  pre facility loan or overdraft.

For obvious reasons the customer would need to be pretty strong in terms of their financial standing. These facilities were more often than not offered  by bank owned finance companies however in the current era of restricted credit most of these facilities have been withdrawn. However not to say a bank might not provide an overdraft facility for some of their better customers.

If none of these are an option  it may be possible to arrange a letter of credit.  This is basically  a bank backed guarantee stipulating that providing certain conditions are fulfilled payment to the supplier is guaranteed. XL Business Finance has experience and expertise at negotiating with foreign supppliers and ensuring the correct wording and documentation is provided to enable the quick release of funds and at the same time providing protection for the customer and comfort the supplier.