I issued a tax invoice but the customer has not paid. Do I have to pay VAT first?

In many cases, yes. The Revenue Code sets the point at which value added tax liability arises. For a sale of goods (section 78), liability arises on delivery, but if ownership is transferred, payment is received or a tax invoice is issued before delivery, it arises when that happens. For services (section 78/1), liability generally arises when payment for the service is received, unless a tax invoice is issued or the service is used before payment. Have your accountant check which point applies to your business, and do not issue tax invoices earlier than the law requires without need.

The customer withheld tax at source. Is the amount withheld a cost to us?

The amount the customer withholds and pays to the Revenue Department on your behalf is a tax credit that you can set against your income tax for that year, provided you hold complete withholding tax certificates. The cash-flow problem is that you receive less money straight away and get the benefit back only later, when you file your tax return. If the year's profit is lower than the tax withheld, you may have overpaid tax that has to be claimed back, which takes time. Keep the certificates complete and follow them up every quarter.

A customer pays late. Can we charge interest if the contract does not say so?

In some cases, yes. Section 224 of the Civil and Commercial Code allows default interest at the legal rate on a money debt once the debtor is in default, even if the contract does not agree it. But the debtor must be in default first, and where there is no fixed payment date a written demand is often needed. State the payment date and the effect of late payment in the contract and on the invoice from the start. Check the current law and notifications for the exact rate.

A large customer will not agree to a deposit or staged billing. What should we do?

Do not start by asking to abolish credit altogether. Offer a middle route the customer can accept easily, such as billing a first instalment when you order custom-made materials, staging payments against progress that can be checked, or having the customer bear the cost of special materials. If the customer refuses outright, add the cost of the money you must fund yourself to the price, because giving credit means lending the customer your money for nothing.

When should we talk to the bank?

Before you run out of cash. A bank usually finds it easier to consider a business that is still paying its debts on time and has numbers it can explain. Prepare a cash-flow forecast, a receivables ageing report, and an explanation of how the money you ask for fixes the cash cycle rather than plugging a hole caused by losses. Read the security terms, personal guarantees and cross-default clauses in full before you sign.

Profitable but Short of Cash: Why a Profitable Business Runs Out of Cash, and How to Fix It Through Contracts and Tax

Many business owners face the same situation. Sales are growing, and the profit and loss statement from the accountant shows a profit, yet the bank account is nearly empty. You have to wait for customers to pay before you can pay salaries and suppliers. Some months you borrow to pay tax calculated on profit that is not yet money in hand.

This is not unusual. Accounting profit counts revenue when you sell and cost when you use it, but cash moves on the dates money actually comes in and goes out. The gap between the two comes from decisions about credit, stock, tax and contract terms, which the owner can change. This guide explains where the money goes and which contract and tax points help bring it back.

The core answer

Being profitable but short of cash usually comes from three things at once: customers pay later than you must pay your suppliers, money is tied up in stock or work in progress, and some taxes fall due before the money arrives. The fix is to shorten the time money is stuck: write clear payment terms, ask for deposits and staged payments, follow up debts systematically, control stock, and plan tax ahead.

The rule (Thai law). The Revenue Code sets the point at which value added tax liability arises for a sale of goods in section 78 and for services in section 78/1, and the two differ. Corporate income tax has a half-year advance payment under section 67 bis (form ภ.ง.ด.51). Section 224 of the Civil and Commercial Code allows default interest at the legal rate on a money debt, and sections 377 and 378 deal with deposits, one of the tools that help you get paid sooner.

Our practical view. Start by drawing your own business's cash cycle before fixing problems one at a time, because the money gets stuck in a different place in each type of business. A contractor's money is stuck in retention money and the final instalment. A wholesaler's is stuck in stock and shop credit. A service business's is stuck with corporate customers on long payment cycles. Once you know where, choose the tool.

1. The cash cycle: where does the money get stuck?

The cash conversion cycle is the time from when you pay for materials or hire people to work until the day you receive money from the customer. It can be explained simply in three parts.

Part of the cycle	Meaning	Effect on cash
Credit given to customers	Goods or work delivered, customer has not paid on the due cycle	The longer it is, the more money is tied up in trade receivables
Credit received from suppliers	You buy goods and pay later	The longer it is, the lighter your cash position
Days holding stock or work in progress	Bought and made before it can be sold	The longer it is, the more money is tied up in goods

The cycle tightens when the credit you give customers is longer than the credit you get from suppliers, and you also hold stock for a long time. The difference has to be filled with your own money or with a loan. The faster the business grows, the bigger the difference becomes in step with sales. A business that sells more can therefore run short of cash more than before, which is why fast growth without working capital planning often leads a profitable business into a liquidity problem.

Ask your accountant to build this three-part table by customer group and product group. You may find that a few large customers hold your money the longest, or that some items turn over so slowly that they consume more capital than the profit they earn.

2. How does accounting profit differ from cash?

There are only a few reasons why the two sets of figures do not match, and the owner should ask the accountant about them regularly.

Revenue not yet collected. The sale is recorded as revenue, but the money is still a receivable.
Stock bought but not yet sold. Paid for, but not yet a cost of sales in the profit and loss statement.
Investment in machinery and vehicles. The cash goes out once, but the accounts write it off gradually as depreciation.
Repayment of loan principal. It does not appear as an expense in the profit and loss statement, but the cash really goes out.
Taxes and contributions that fall due. They must be paid in cash on the dates the law sets, whether or not customers have paid you.
Money the owner or directors draw from the company. It may not be treated as an expense, but it reduces the company's cash.

The last point, using company money for personal purposes, has a further legal and tax layer. See the family business service if family members are involved.

The most basic step is to ask for a simple monthly cash-flow statement containing only money in from customers, money out to suppliers, salaries, tax, interest and investment, looking forward at least one quarter. These figures let you see the month when cash will run short before it actually happens.

3. Taxes that fall due before the money arrives

Tax is the cause owners least expect. Check the points below with your accountant or tax adviser, because the details differ by type of business and by the facts.

3.1 Value added tax (VAT) and the point of liability

A VAT-registered operator must remit output tax in excess of input tax when liability arises, as the Revenue Department explains in its value added tax section.

Sale of goods (section 78). Liability generally arises on delivery of the goods, but if ownership is transferred, payment is received or a tax invoice is issued before delivery, liability arises when that happens. So if you deliver goods and give the customer 30 or 60 days' credit, you must still remit VAT for the month of delivery, even though the money has not come in.
Services (section 78/1). Liability generally arises when payment for the service is received, unless a tax invoice is issued or the service is used before payment, in which case liability arises when that happens. A service business should therefore be careful not to issue tax invoices earlier than necessary, because that means remitting VAT before the money comes in.
Sections 78 and 78/1 have exceptions and special cases, such as hire-purchase, instalment sales, construction work and cases the law treats separately. Your accountant must check business by business.

A VAT-related contract term should state clearly whether the agreed price includes or excludes VAT. If it does not, there may be a dispute over whether you must bear the tax yourself.

3.2 Withholding tax deducted by customers

When a customer that is a juristic person, or another person the law specifies, pays you for services, wages or certain other kinds of income, the customer must withhold tax at the legal rate and pay it to the Revenue Department on your behalf. You therefore receive a net amount lower than the invoice. The amount withheld is a tax credit against your income tax when you file the annual return.

The effect on cash is twofold. First, the money coming in is reduced at once. Second, if the business makes little profit or a loss, the credit may exceed the tax payable, so you wait for a refund, which is another block of tied-up money. What to do:

Require in the contract that the customer sends the withholding tax certificate within an agreed time.
Keep every certificate and match each one to the invoice that was paid.
Have your accountant estimate the annual tax in advance, to see whether the tax credit exceeds the tax payable.

3.3 Corporate income tax and the half-year advance payment

A company must file form ภ.ง.ด.51 and pay tax in advance under section 67 bis, estimating the net profit for the accounting period and paying within the deadline after the end of the first half of the accounting period. The tax on the remainder is paid at the end of the accounting period with form ภ.ง.ด.50. The deadlines and the method of estimation are subject to conditions in the Revenue Code and Revenue Department notifications. The accountant must remind the owner in advance, because this is a lump sum that falls due even when debtors have not paid.

This does not tell you how to pay less tax. The owner and the accountant should plan so that the money for tax is set aside before it is used elsewhere.

3.4 Contributions and regular expenses

Social security contributions and salaries fall due on fixed dates however late customers pay. The risk is using the money that should be kept for these to pay suppliers first, and then falling behind on obligations that carry penalties or surcharges under the law. Prioritise payments according to the consequences of default on each item.

4. Contract terms that help you get paid sooner

Part of working capital can be fixed at the negotiating table. Before quoting, work out what the credit a customer asks for costs you, then use the terms below.

4.1 Deposits and advance payments

Section 377 of the Civil and Commercial Code provides that when a contract is made, anything given as a deposit is presumed to be evidence that the contract has been made, is part payment if the performance is in money or something compatible, and is security for performance of the contract. Section 378 sets out the consequences when the party who gave the deposit fails to perform, for example that the party who received it may forfeit it, or, when the party who received the deposit is in breach, must return it and pay an amount equal to the deposit. Check the latest text of the provisions before using them to draft a contract.

Points to state clearly:

What this money is called: "deposit", "booking fee", "first instalment" or "advance payment", because the legal effect differs and it also affects the issue of tax invoices and the point at which tax is recognised.
If the customer cancels before work starts, is the money paid refunded, and who bears the part you have already invested?
A deposit for materials made or ordered specially for the customer is generally suitable to be non-refundable when the customer is the one who cancels.

A business that sells to consumers must take care that deposit and forfeiture terms do not amount to terms that are unreasonably one-sided, so that a consumer could argue they have no effect. Check the consumer protection law relevant to your business before using a fixed form.

4.2 Staged payments against progress

Work that takes a long time should not be billed in one lump when it is finished. Divide it into instalments tied to events that can be verified, such as at start of work, on delivery of the design, when installation is finished, when testing is passed, and the final instalment on acceptance. The key is that each instalment is tied to something provable, not to "when the customer is satisfied", and there must be a clause that the work is deemed accepted if the customer does not object in writing within the agreed time. For details of the acceptance terms, see the guide to checking a big customer's contract.

If you are a contractor whose retention money is outstanding, see retention money not returned.

4.3 Payment date and the effect of late payment

State a fixed number of days from the invoice date or the delivery date, not from an "approval" that the customer controls.
State default interest or a right to suspend work when payment is late. Section 224 of the Civil and Commercial Code gives default interest at the legal rate even if none was agreed, but writing it down makes it easier to demand, and if you want a rate different from the legal one, it must be agreed in writing and you must check that the agreed rate does not exceed what the law allows.
State a right to withhold delivery or suspend services when an overdue balance exists, on prior written notice.
Require invoices to be sent to a stated address or email, so the date of receipt can be proved.

4.4 Pricing that reflects the cost of credit

Credit given to a customer is a loan you make without interest. If a customer asks for long credit, offer alternatives, such as a price that includes the cost of credit, or a discount for early payment. Offering these as options for the customer to choose is easier to agree than refusing credit outright.

5. Controlling receivables: a follow-up system that works in practice

Good debt follow-up starts before default.

Check new customers before giving credit. Check the juristic person's status and the information that is publicly available, and set credit limits in tiers rather than deciding by feel.
Invoice at once. An invoice issued later than the delivery is credit you give additionally without meaning to.
Review the receivables ageing report every week, separating amounts not yet due, recently overdue and long overdue.
Follow up in stages as the due date approaches and passes. Remind before the due date, call or email when a few days overdue, and send a written demand when further overdue.
Stop deliveries when the balance exceeds the limit, if the contract gives you that right, and apply it consistently.
Keep evidence: delivery notes signed by the customer, purchase orders, invoices and emails acknowledging the balance, because limitation periods and proof of the debt rely on these documents.

When a customer really does not pay, see unpaid invoices from business customers and the guide to debt collection, suing debtors and enforcement. The rules on debt collection that creditors must watch are in the post how far can you chase debts yourself.

6. Stock and work in progress

Money tied up in stock can be fixed by a written policy.

Separate fast-moving goods from slow-moving goods, and decide that slow-moving goods are bought only when a purchase order supports them.
Order customer-specific items on terms where the customer bears the burden, through a buy-back clause or payment for materials ordered, if the customer does not take the goods.
Negotiate terms with suppliers, such as longer credit, consignment or smaller delivery rounds, in return for consistent orders.
Check for stock that is deteriorating or expiring, especially food, cosmetics and products with expiry dates, which lose value the longer they are kept.

If your contract manufacturer holds raw materials or packaging that you ordered, write an agreement on who owns them and who bears the cost if the order is cancelled. See switching an OEM factory.

7. Talk to banks and funders at the right time

Banks and lenders look at the ability to repay, not only at profit. Prepare:

A forward cash-flow forecast, with assumptions you can explain.
Current receivables and payables ageing reports.
An explanation of how the loan shortens the cash cycle or supports the extra sales.
Financial statements and tax returns filed correctly and completely.

Before signing a loan agreement, read at least:

Security. Whether it is company assets or the directors' personal assets.
Personal guarantee. How the guarantor is liable. See the risks of guaranteeing a loan.
Cross-default. Whether default under one contract allows the bank to call in other loans.
Financial covenants, such as no dividends or no new debt without permission.
Fees and early repayment terms. Check them in the actual documents, not from advertising.

A liquidity problem can be solved with a new loan only when the business is truly profitable and the cash cycle is tight because of growth. If the business is making continuing losses, a new loan may add to the burden, so consult the accountant or auditor before deciding.

8. When cash starts to run short of paying debts

If the business begins to be unable to pay suppliers on time, proceed in this order.

List all creditors, the amount owed, due dates and security.
Rank payments by the consequences of default, for example salaries and contributions, taxes that have fallen due, secured debts, and only then general suppliers.
Negotiate a payment plan with creditors before you default, in writing.
Avoid transferring assets or paying certain creditors in preference without consulting an adviser, because it may be set aside later if the business becomes bankrupt.
Assess whether the problem is temporary liquidity or the structure of the business.

If the debts are more than the business can pay, see options when a company cannot pay its debts and the creditor's guide to Thai bankruptcy and rehabilitation, to understand the position of the creditors you are negotiating with.

9. A 30, 60, 90-day action plan

Period	What to do
First 30 days	Build a 3-month forward cash-flow statement, produce a receivables ageing report, check every tax due date with the accountant, and identify the 5 longest-overdue debtors
60 days	Revise contract templates and quotations to include a payment date, default interest and staged-payment terms, start the staged follow-up system, and offer deposits or staged payments to new customers
90 days	Review the stock policy and supplier terms, talk to the bank if needed with complete figures, and set a monthly cash-cycle review date