'Cash from debtors' means all income you receive from account customers that you send an invoice to, usually at the end of the month. After you have sent them an invoice, but before they pay you, they are your debtors. When they do pay you, the payment is referred to as Cash from debtors.
Payment terms - account customers
Decide whether you will offer account facilities, and if so who will be eligible. Account customers might include businesses and organisations that use your services on a regular basis, for example:
- building and civil engineering contractors
- landscape gardeners
- property developers
- event organisers
- farmers, equestrian businesses and other landowners
- local authorities
- other public sector organisations, for example the Ministry of Defence
- housing associations
- other large organisations
You might decide to offer account facilities to all non-domestic clients - businesses like holiday parks and pubs - but not to householders.
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 continue to work for customers who do not pay their bills.
You may find that some large organisations want to pay you 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). Building and civil engineering contractors may take as long as 90 days to pay and sometimes they will try to avoid paying you until they themselves have been paid for their 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.
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.
Your business stationery
Have some invoices printed for sending to 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.