Payment Terms for Plumbing and Heating Businesses

 I often hear plumbing and heating businesses ask:

“What should my payment terms be?”

That’s a very broad question but hopefully this blog will open your mind and give you the tools needed so that you can answer the question yourself. Because ultimately, you- being the business owner, you have to set the payment terms and stick to them.

First of all, it is very important to get your payment terms right, your lively hood depends on it. 

 There’s a saying in business that goes: 

'sales is vanity, profit is sanity, cash is king.' 

Sales is vanity:

Broken down, it basically means that all of your sales in your business, your top line ie what you invoice out to your customers is all for show,  – it doesn’t actually mean anything. Now you could invoice £10,000 a month, £20,000 a month, or even £100,000 a month in your plumbing and heating business. But that’s all it is- an invoice, an email or a piece of paper!

Profit is sanity:

You should know that profit is calculated from ‘sales - costs = profit.’ So all of your ‘show off sales’, less all of the expenses, costs, money out = profit – or the small bit left over for you the business owner. This is sanity – everyone in business should be in business to make a profit – end of!   

Cash is King:

Bringing all the points together, cash is king! Which I will explain further on.  

You can have loads of profit displayed on your financial statements, but the problem is, you could also have high debtors, loads of so called loyal customers that owe you money. You can do all the hard work to help a household get their heating and hot water up and running again, but if no one pays you, you can’t pay yourself. You can’t provide for your family, you can’t go on holiday, you can’t buy a Ferrari! Unless your customers pay you, sales and profit doesn’t actually mean a thing. That’s why when you hear the saying, sales is vanity, profit is sanity, cash is king. CASH IS ABSOLUTELY KING.

 

Cash is the most important part of any business.

Without cash you can’t pay your staff, you can’t pay your suppliers, you can’t pay your insurance, you can’t pay yourself. Without cash you have no business!

 If you’re constantly invoicing for work and you don’t get paid, you’ve still got bills and payments leaving your bank account. How is that getting financed? 

 Without cash constantly coming into the business from sales there’s a number of ways this could go:

•     The director has to put their hand in their pocket to prop up the business to put money back into the business bank account.
•      Alternatively, you’ll be going to the bank to ask for an overdraft or a loan. If you’re going into your overdraft the bank is going to charge you interest at an extortionate rate. You might be getting late payment fee’s from suppliers too.
•     Worst case scenario you’ll have to turn the lights off in your plumbing and heating business. You haven’t got a business because you haven’t been able to manage your cash flow properly. By not managing your cash it’s a quick downward spiral to being out of business.

Hopefully that has made it extremely clear that you need to get your payment terms sorted for your plumbing and heating business to be able to survive.  

So what can you do?

A simple and effective way to make sure that none of the pains and hassles mentioned above happen, is to get paid upfront. Simple! Get a deposit for that boiler installation. Inform your domestic customers when you go to their property the price is going to be X amount for the breakdown call and that we require upfront payment. Tell them that the balance will be due at the end of the job or before you leave their premises!

Think about other businesses. When you go to the dentist you don’t leave the dentist unless you’ve paid. You go to the garage to get your car MOT’d. At the end of it you pay them. 

Your insurance company- you pay them upfront, Netflix- you pay monthly upfront, Amazon Prime- you pay them upfront, you go to Sainsbury’s – you pay for everything before you leave.

 You don’t leave and then pay them months later which traditionally a lot of plumbing and heating businesses do. They’ll go to a job, invoice a client and wait to get paid. They hope and pray that the client pays them in line with their payment terms which is usually 30 days  end of month or more. It’s madness! 

The businesses which are around and thrive don’t offer long credit terms and if they do, they have probably got a debtors policy (if you want to discuss a debtors policy please get in contact) whereby they’ve got strict guidelines as to how they offer credit to their customers. 

You might do a lot of business for letting agents, a local council, a local housing association, a builder or a main contractor who may dictate to you their terms. Saying that they can not pay you up front or will not pay you until the end of the job – they need an invoice and will pay when their accounts department gets round to it. Therefore you need to manage the relationship and expectations. That might be through a debtor’s policy, it might be that you credit check businesses, it might be you have a trade account application (just like when you go to Wolseley, Screwfix or Plumbase. If you want to open up a merchant account with them, they will give you a credit application form which needs to be completed). 

 My point is, you also need to give your business to business customers a credit application. Fill out a document where at the end of it there’s a personal guarantee on it, strict payment terms and repercussions if terms are not adhered to.

In summary:

If you’re a plumbing and heating business offering business to customer (domestic) services, make sure you get paid up front 100% all the time. If you do work for business to business, you need to have a strict debtor’s policy in place. You need to vet everyone, and you need to have a credit application form. You also need to stick to your guns. If at any point someone doesn’t abide by your policy or your terms then straight away they’re on credit stop. 

 The thing about being a plumbing and heating business is that people need you, people need your services, people need water, people need heating, people need leaks fixed so therefore they must pay you for your services, for your expertise and your knowledge. They need to pay you upfront or inline with strict agreed upon pre-set terms because if not, you’re not going to be in business for long!

I’ve come across a saying this week that there’s three facts in life:

"Death, taxation and your boiler breaking down!"

I think this really homes in on the point of how important plumbing and heating businesses are. 

 Don't be taken for granted! Get paid per your terms, not by anyone else!

If you wish to discuss getting your payment terms on point please don't hesitate to get in touch.
info@togetherwecount.co.uk
www.togetherwecount.co.uk
https://g.page/Together-We-Count-Limited?gm
01273 569088 or 0114 400 0119