Split payment and RAD could reshape companies’ cash flow

Brazil’s tax reform is set to change how companies manage cash by directing new consumption taxes to the tax authorities instead of leaving the money temporarily with suppliers. The shift will come through split payment and RAD, or Collection by the Acquirer, and could make short-term financing more important for businesses.

Under split payment, financial institutions and payment providers will automatically separate the IBS and CBS portions of a transaction when it is settled, transferring them to the Federal Revenue Service and the IBS Governing Committee. The system is expected to begin on an optional basis in 2027 and become mandatory in mid-2028. It is intended to combat tax evasion and speed up tax credits, but it will also prevent companies from using tax funds as temporary working capital.

RAD is due to become optional in January 2027, before bank-based split payment is operating. Under this approach, the purchasing company pays the taxes directly to the government and transfers the remaining amount to its supplier. The mechanism can help secure IBS and CBS credits, which depend on the taxes having been paid at the previous stage of the transaction.

The change may require companies to adjust their financial planning. Businesses have often used money set aside for taxes to cover expenses or replenish stock before paying their tax bills. With RAD and split payment, those funds will no longer enter the supplier’s cash balance. Companies that do not prepare may have to rely more heavily on short-term bank credit, which the source describes as scarcer and more expensive.

For buyers, the main concern is the timing of tax credits. A purchaser does not automatically lose a credit if its supplier has not paid the tax: it can use RAD to secure the credit. However, the credit may be delayed until financial settlement through RAD or split payment, affecting cash-flow forecasts.

The source argues that companies will need to assess the impact on their cash flow ahead of the January 2027 changes. Tax-modeling software using artificial intelligence can simulate the effects of the new collection methods, while checking tax documents and suppliers’ payment status may help businesses decide when to use RAD and avoid errors that could delay credits.

Sources: Folha Mercado.