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 587 contractors with at least $100K in invoiced revenue, the median collection rate is 80.8% — meaning 80.8 cents of every invoiced dollar is in the bank. The top decile sits at 94.8%. 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. Collection probability drops from 94% at 30 days to 74% at 90 days to 26% at 12 months.

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. Once a receivable hits 90 days and there's been no proactive escalation, the math says you'll collect about 74% of it. At 12 months, you're at 26%. 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 a real CFO with AI leverage does

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 with AI leverage 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.