Industry sector:

Electrician: Cash from debtors

'Cash from debtors' means any income you receive from account customers that you send an invoice to, 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.

Decide whether you will offer account facilities, and if so who will be eligible.

Your account customers might include businesses and organisations that use your services on a regular basis, for example:

  • general building contractors and developers
  • other electrical contractors
  • local authorities
  • housing associations

You might decide to offer account facilities to all non-domestic clients - businesses like shops, pubs and offices, but not to householders.

Payment terms

Agree payment terms with your account customers so that there is no confusion as to when invoices should be settled. 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, say, 28 days of the invoice date.

You may find that some large organisations want to pay on their own terms. This is often a condition of the contract. Local authorities, for example, will often pay you between 20 and 60 days after the work is completed (they may make an interim payment while the work is being done). Builders and other contractors may take as long as 90 days to pay and sometimes specify that they will not pay you until they themselves have been paid for the work. Some contracts specify that a certain amount (often known as retention money) is held back for a given length of time, after which it is only paid in full if all the work is found to be complete and satisfactory. Be aware that some parts of the construction industry have become notorious for very slow payment and other practices like attempting to reduce the value of sub-contractors' invoices.

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 in the month in which the money is due to be received.

Consider what steps you will take to recover any overdue amounts and whether interest will be charged on these. Don't go on dealing with customers who do not pay their bills.

Your business stationery

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