DSO and Collections for Contractors

What DSO is and why it matters more than revenue

Days Sales Outstanding measures how long it takes you to collect cash after invoicing. A contractor with 30-day DSO collects in a month. A contractor with 90-day DSO takes a quarter.

On $10M in annual revenue, a 60-day swing in DSO is roughly $1.6M of cash that's either in your account or sitting in a customer's. At an 8% cost of capital, the spread between a well-run contractor and a poorly run one costs $130K+ a year in pure financing cost, before any bad debt.

Most contractors track revenue obsessively and DSO not at all. That's how profitable companies run out of cash.

Collection rate: what good looks like

Across 464 contractors with at least $100K in invoiced revenue, the median collection rate is 85.1%, meaning 85.1 cents of every invoiced dollar is in the bank. The top decile sits at 96.0%. The bottom decile collapses to 38.8%.

Some of the gap is normal working capital, recent invoices, retainage, AR not yet due. But the spread between contractors at 71% (P25) and 95% (P90) reveals real differences in AR management. Construction bad debt runs 1.5-3% of credit sales industry-wide. The widely cited collectability curve from the Commercial Collection Agencies of America shows recovery dropping from about 94% at 30 days to 74% at 90 days to 26% at 12 months (a general commercial-collections benchmark, not construction-specific).

Contractors at the top decile aren't lucky. They escalate at 30 days, not 90.

Billing speed: the lever you control

Among contractors who don't progress-bill, the median delay between job completion and invoice is 7 days. One in four waits 14+ days. The bottom decile waits a full month. That's a month of free financing for the customer.

On a $50K job, a 30-day delay at 8% cost of capital costs $330 in pure float. Across hundreds of jobs per year, billing speed compounds into real money. The fastest contractors in our sample bill same-day or progress-bill, collecting cash while work is still in progress.

Owners who complain about cash flow often have an invoicing speed problem, not a revenue problem. The contractors with the best cash positions aren't the ones with the most revenue, they're the ones who bill fastest.

Retainage and AR aging: the structural drag

Retainage on commercial work, typically 5-10% withheld until project completion, is structural cash drag. You can't eliminate it, but you can manage it. The contractors who collect retainage fastest have a retainage release process that starts 60 days before substantial completion, not 30 days after.

AR aging beyond 90 days is where bad debt hides. On the Commercial Collection Agencies of America collectability curve, a receivable that reaches 90 days without proactive escalation collects at about 74%, and by 12 months about 26% (a general commercial-collections benchmark). Treating 90 days as the start of escalation, not the start of awareness, is the single biggest improvement most contractors can make to collections.

Sub-contractors face the worst version of this. GCs treat them as interest-free lenders, holding payment 60-90 days as standard practice. The fix isn't to fight the system on every job, it's to price the cost of that float into your bid.

The collections playbook: what to actually do

• Day 0: invoice the same day work completes (or progress-bill before). The number-one lever is speed.
• Day 7: automated reminder if unpaid. Polite, just-the-facts. Most invoices get paid here.
• Day 14: personal touch from accounting, phone call, not email. Confirm receipt, ask if anything is blocking payment (missing waiver, expired COI, PO issue).
• Day 30: escalation. Owner-to-owner email or call. Past 30 days is where most contractors quietly give up. Don't.
• Day 60: formal demand letter, payment plan, or finance-charge invocation. The longer past 60 days, the more aggressive you should be, collection probability is already starting to drop.
• Day 90+: legal escalation, lien rights review, or factoring decision. By 90 days, you're playing for partial recovery, not full.

Fixing the system: what the operating layer does each week

Most contractors don't have a DSO problem because they don't know how to collect, they have one because nobody owns the AR aging report. Office managers run payroll and cut checks. Bookkeepers reconcile. Owners chase quotes. Nobody calls past-due customers on day 14.

The fix is process, not personality. A weekly AR review with explicit owner accountability, an automated dunning cadence in QBO or your billing tool, and a monthly review of compliance gaps that stall payment (missing waivers, expired COIs, PO mismatches).

If you don't have someone on staff to own this, a fractional CFO backed by AI is the cheapest version. We see your AR aging in real time, flag the past-due exceptions weekly, and run the escalation playbook so you don't have to.