Industry sector:

Car parts shop: Cash from debtors


'Cash from debtors' means all income you receive from customers to whom you send an invoice, usually at the end of the month. After they have been sent an invoice but before they pay, they are your debtors. When they pay you, the payment is referred to as Cash from debtors.

Terms and conditions

Decide whether you will offer account facilities, and if so who will be eligible. If you hope to build up a significant amount of 'factoring' business (selling parts and accessories to the motor trade) then you will probably have to offer account facilities to all of your regular trade customers. These will include local repair garages and possibly other businesses such as used car dealers.

Agree payment terms with your account customers. You might, for example, require all accounts to be settled every month, perhaps by a particular day of the month. Alternatively, you might state on your invoice that payment must be made within 28 days of the invoice date. Consider what steps you will take to recover any overdue amounts and whether interest will be charged on these. Don't go on supplying customers who do not pay their bills.

Make an estimate of the amount of income you are likely to receive from account customers each month. Enter the amount in your cash flow - remember to put it in the month in which the money is due to be received.

Early settlement discounts

If you have a substantial number of account customers, you may decide to offer them a small discount for early payment. This can help to bring in the money more quickly. Remember though that discounts eat into your profits.

Your business stationery

Have some invoices printed for sending to account customers. A good printer will be able to advise you on layout and style. If you are registered for VAT you must include your VAT registration number on your invoices.