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The practices and methods described in this article describe those used in the running of the author’s previous fire extinguisher business. They may be incomplete and there may be better ways of collecting debts – but we wrote off less than 1% per year in bad debt, so hopefully someone might pick up something useful.

Running a business usually involves trying to accrue more money than you spend. Literally we buy goods (such as a fire extinguisher etc.) and try to sell them for more than we initially paid. After all if an item costs you £20 and you sell it for £40 you have made a profit …… right.

Wrong! – up to now you have just spent money.

The Truth
You haven’t made a profit until you have covered all of your costs (staff, vehicles, rent etc.) ‘and’ your customer has paid you. In these ‘credit crunch’ time’s people tend to have a habit of hanging onto their money till the last possible minute. To be fair many of them are in turn waiting for their customers to pay them their money – it’s all a big roundabout, you are just one small company in the chain. How can you be sure that you are going to get paid if the chain fails?

The Sale
OK you’ve made a sale, your customer has let you service their fire equipment, you have test discharged a couple of waters and sold a few signs. Let’s say that the final bill comes to £100 – what do you do next? Well for some customers you can say thank you sir that will be £100 please and he pays you in cash. Yeah right. If it was that simple there wouldn’t be a problem and let’s face it this is still the most efficient way to do business, however most customers will say ‘send me a bill’. So effectively you have to trust the customer to look after £100 of your money until he see’s fit to pay you. Let’s hope he does however there are a few ways of making it more likely that you do see your money again.

The Purchase Order
When you make a sale it is very important to get a signed agreement detailing the goods and services supplied together with the costs involved. Virtually all companies will have some sort of purchase order that their customers sign, but would it stand up either in a courtroom or with a liquidator (if the customers business fails before you get paid). Ideally your purchase order should include: 

  1. Your company name, address, telephone number, VAT number etc.
  2. A concise list of all goods supplied or work done
  3. Details of all charges incurred together with a subtotal, VAT and Final total.
  4. The date that the charge was incurred.
  5. Your terms of business
  6. A place for the customer to sign and print his /her name and position.

Most business will get the bulk of this right however the terms can sometimes be overlooked and it is important to get these right. For a start ‘Keep it Simple’. We have all seen the terms and conditions listed in small print on some company agreements. They cover everything from the outbreak of war and acts of terrorism to acts of God. Often the print is so small that you need to use a microscope to read them. In the real world (where you need to use a small claims court) a judge may choose to completely disregard these, the logic being that if he can’t read them without aid then neither could anyone else. Treat the customer in a reasonable manner with one or two simple terms and you will have more chance of cooperation. Two things you do need to incorporate are:

  1. A payment term i.e. ‘Payment due within 30 days’
  2. A statement of title i.e. ‘The property in the equipment supplied shall remain the property of the company until the purchaser has paid the full price thereof as well as any other payments due to the company’. (This clause protects you from liquidators).

A straightforward clear purchase order is one that is fair to both parties and which makes it clear what the customer must do to comply with the agreement.

The Invoice
Once work has been completed we proceed to the next stage i.e. The Invoice. Ideally this needs to happen without delay. The quicker an invoice goes out the sooner you are likely to get paid. Most of the details that apply to your purchase order also apply to your invoice. In particular the terms shown on your purchase order need to be repeated on the invoice. This makes it clear when payment is due and explains that ‘you’ are the legal owner of the goods until payment has been received. Fire protection companies typically send out a large number of invoices for relatively small amounts of money, as such it is important to get yourself well organised. Use a computerised accounts package to record all information and print off a duplicate copy of each invoice to keep a hard copy on file.

First Month
OK you have done everything by the book. A month has gone by – what happens next. Typically you should find that around half of your customers have paid you as agreed. The rest have either forgotten about you, lost your invoice, sent the cheque weeks ago but it got lost in the post …. The list of excuses goes on – what is the next stage.

A statement run can be hard work – but must be carried out religiously once a month. If you use an accounts package (Sage etc.) it’s obviously easier but this still needs to be carried out in a methodical manner. It is important to remind your customer that he owe’s you money and that you expect to be paid. The longer a debt goes on the harder it is to collect. Start by printing out all statements and sorting them into piles i.e. 30 days, 60 days, 90 days and older. Personally I didn’t send statements to customers under 30 days old to save on postage and paperwork however this must be your own decision. Take the pile of statements that have passed 30 days old and overprint them with a clear message using a word processor. Use a short simple message – ours reads:

May we remind you that your account is now overdue

This is a short inoffensive message that should prod your customer to send you a cheque, and many of them will. Over the next month at least fifty percent of the 30 day over dues will respond to your statement.

The next pile of statements will include debtors who have exceeded 60 days. Many people nowadays believe that a 60 day period is perfectly acceptable – they are kidding themselves. A 60 day debt is serious and should be handled more forcefully, it is no use being timid about it, those customers have your money in their accounts – you want it back. There are a number of measures that can be taken at this stage (or even before this stage) however in the real world you will likely still have a fair number of people who owe you money and you will be limited by your own resources (including time and money) about how best to proceed. As before overprint the statement with a message using your word processor. This time the message needs to be a bit heavier. My own message was:


May we remind you that our terms are strictly 30 days.

All the time we need to remember that this is our customer, we would like to do business with him again, however we also need to step up the pressure for payment. A steadily accelerated response generally gets the best results. At this point (depending upon the numbers involved) it will probably be effective to telephone the customer before sending out the statement. The chances are that you may get fobbed off with an excuse, however many of them will react positively and the statement that they receive from you a couple of days later will reinforce the message.

The 90 day statement pile will include the hard cases. Hopefully if you have followed through with the previous recommendations this pile should be much smaller. (If it isn’t then you seriously need professional help). A large pile at this stage means that your business is in real trouble. Overprint your statement with a stern warning i.e.

Past 90 Days. We are about to issue a summons for the outstanding balance plus costs

Again telephone the customer before you post the statement. Explain that the account is seriously overdue and that his company is about to be taken to court for non payment. This will involve him incurring additional charges for court costs. At this point you do not generally need to worry about losing the customer. Someone who has kept you waiting this long for payment is not a customer, he is just a parasite. Whether you do business with him again is your decision, but certainly do not worry about upsetting him, hard types like that are not easily offended.

The tough action following the 90 day statement should have reduced your pile of overdue debtors to virtually none. Within the next few days you need to act appropriately with any that you have left. Your options include:

  1. Visiting the customer and asking for payment
    This can be surprisingly effective. Even the hardest customer will have difficulty in refusing a doorstep caller. Certainly for small amounts this is the most efficient action to take.
  2. Starting court action.
    This is a last resort. But if you have threatened legal action you must be prepared to go through with it. For those who have never used the small claims court this is an effective and relatively inexpensive means of getting paid. At one time you used to have to go to court, fill in forms and generally waste several hours starting a case. These days it’s much easier – just do it online. Court action can be started at

    You will need to register as a new customer after which you will get a username and password for future cases. Follow the instructions, fill in the online forms and pay a fee (depends on the value of your claim but generally about £35 or so). The costs have to be paid by you initially however your debtor will be ordered to pay them back when you win.

In my own experience about 50% of people who receive a County Court summons pay up immediately to avoid going to court. Another 25% will not turn up at court on the day and will be ordered to either pay up by default or face a legal judgement against them and possible bailiff action – most will pay. The final 25% will need to be collected (usually by bailiff), this again can be organised online.

Overall the collection of money can be a stressful and difficult experience, however without some process of debt collection your business simply will not survive.

This author of this article is Tom Law the UK Fire Association Treasurer