$365,000 HELD IN OVERDUE AR. EVERY DOLLAR OF DEBT GONE IN 120 DAYS.
Eleven years in business and every month was a decision about which vendor to pay and which one to push off. The debt wasn't the problem.
A $3.2M electrical subcontractor cleared every dollar of debt she had held for years in 120 days, and the money came out of her own accounts receivable rather than from a lender. She had $365,000 held in overdue AR, which is a collections problem rather than a cash flow problem and one of the most common findings in electrical subs doing $1M to $5M. Electrical subs are often the last trade in and the first expected to be done, and because GC relationships hold so much weight, collecting payment feels like a risk, so invoices age to 180 days and get written off without anyone deciding to write them off. None of the $365,000 was owed by a deadbeat GC. It was owed by GCs she was still working with, who would have paid the moment someone called, and nobody had called. A collections process took about 90 days to work through the aging, including correcting pay apps with errors and resubmitting lien waivers that had been filed wrong, and the recovered money retired all of the debt in 120 days.
The second finding was margin visibility. Her three best GC relationships were producing 28 percent, 19 percent, and 9 percent gross margin, and she was treating all three the same because nothing in the books told her they were different.
This post is the same recovery told from inside the owner's year. Read The Electrical Contractor AR Recovery Case Study for the complete treatment, worked figures included.
ELEVEN YEARS IN, AND STILL CHOOSING WHICH VENDOR TO PAY.
The owner of a $3.2M electrical subcontracting company had been in business for eleven years. She was good at her trade, her crews were reliable, and her GCs liked working with her. By every field measure, the business was working.
Financially, it felt like being on a treadmill. Every month she was managing which vendor to pay and which one to delay. She had debt she'd held for years, not catastrophic, but enough that it had become background noise. Something she'd stopped thinking she could eliminate.
She had $365,000 held in overdue accounts receivable. That's a collections problem that looks like a cash flow problem, and it's one of the most common things we find in electrical subcontracting companies doing $1M to $5M in revenue.
WHY ELECTRICAL SUBS LET AR AGE OUT.
Electrical subcontractors are in a tough spot in the payment chain. You're often the last trade called in and one of the first ones expected to be done, and your GC relationships hold more weight than almost anything else in the business, because you need them to keep calling you back.
That dynamic creates a specific kind of collections paralysis. You don't want to be aggressive about collecting payment because you're worried about straining the relationship, so you send the invoice, you wait, you send a reminder, and eventually you just assume the GC is slow and move on. Six months later the invoice is 180 days old and you have essentially written it off without ever making a decision to do so.
The $365,000 this electrical sub had in AR wasn't from deadbeat GCs. It was from GCs she was still actively working with, people who would have paid the moment someone called and asked. Nobody had called.
It was owed by GCs she saw every week. Nobody had picked up the phone.
$365,000 RECOVERED AND EVERY DOLLAR OF DEBT GONE.
Within the first phase of engagement we built a collections process and worked through the AR aging systematically. We contacted every GC with an invoice over 30 days. We corrected pay apps that had errors holding up approval. We tracked down lien waiver requirements that had been submitted wrong and resubmitted them correctly.
The collections process took about 90 days to work through the backlog. When it was done, $365,000 had moved from accounts receivable into her bank account.
That money paid off every dollar of debt she'd held. Not a payment plan, not a restructuring, all of it, gone, in 120 days, from money she had already earned and already been owed. She had spent years believing the debt was just part of managing a small electrical subcontracting business. It wasn't. It was the direct result of not having a collections system, and it went away the moment one was put in place.
OVERHEAD ALLOCATION ON SMALL CREWS.
Beyond collections, we found the same overhead miscalculation we see in most electrical subs at this revenue level. She had no real visibility into which jobs were producing margin and which ones weren't.
Her three best GC relationships were each producing a different gross margin and she had no idea. One was consistently at 28%. One was at 19%. One was at 9%. She was treating all three the same.
When you know which jobs make money, you bid them differently. You protect the relationships that produce real margin, and you either price up or walk away from the ones that don't.
THE FIRST CHRISTMAS BONUSES SHE HAD EVER PAID.
At the end of the year, the electrical sub paid out $23,000 in Christmas bonuses, the first time in eleven years of business.
Her crew had been with her for most of that. They were good electricians who were on the job every day and did solid work, and she had always wanted to do something for them at year end but could never justify it financially.
The business had been generating enough profit to support it for years. She just couldn't see it, because it was held in aging AR and obscured by overhead that wasn't being tracked correctly. Same business, same crews, same GCs, better system.
THE SHORT LIST.
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