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

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

 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

 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.
01273 569088 or 0114 400 0119

Leave a Reply

Your email address will not be published. Required fields are marked *