$365,000 COLLECTED. ALL DEBT GONE IN 120 DAYS.
A $3.2M commercial electrical subcontractor had a collections problem that had turned into a debt problem, borrowing to cover work that had been performed and never collected. We built job costing from scratch and put a systematic collections process in place. $365,000 of overdue receivables came in, all debt was cleared within 120 days, and the owner paid $23,000 in bonuses.
Electrical work funds itself last. Switchgear, wire, and equipment get bought early to fix pricing and hold the schedule, labor goes out every week, and the pay application collects 60 to 90 days later with retention held behind it. This contractor was funding all of that with no collections routine, so the receivables aged and the borrowing grew to cover the same work twice. Nothing was wrong with the jobs. The money had already been earned and was held in other companies' bank accounts, which is why the first 120 days produced a result that looked like a turnaround and was really just collection.
- Revenue
- $3.2M
- Before
- Borrowing to cover work that had been performed and never collected.
- After
- All debt cleared, with the collections routine and billing calendar still in use.
- Time
- 120 days from first call to all debt cleared.
- Result
- $365,000 of overdue receivables recovered, and $23,000 in bonuses paid, the first in 11 years.
A $3.2M ELECTRICAL SUB. OWED, NOT UNPROFITABLE.
A commercial electrical subcontractor doing $3.2M a year, handling service and small project work for general contractors and repeat commercial clients. The crews were licensed and busy and the work was well regarded. The owner had been borrowing for two years to cover payroll and material, and hadn't paid a bonus in 11 years.
BORROWING AGAINST WORK HE HAD ALREADY DONE.
Every month went the same way. Material and payroll went out, the pay applications went out late and sometimes incomplete, and the money came back whenever it came back. To bridge it he borrowed, and the borrowing cost came off a margin nobody was measuring.
Nobody in the company owned collections. Calls were made in the weeks money was needed, which is the point at which a 90 day invoice has already taught the customer that nothing happens. Several invoices had aged far enough that the owner had privately written them off without ever formally deciding to.
He also couldn't say what any job made. Costs were coded by vendor, so the profit and loss was accurate and told him nothing about which service work and which project work was funding the company.
A COLLECTION PROBLEM WEARING A DEBT COSTUME.
The chain started with billing that went out late and incomplete, moved into receivables that aged with nobody responsible for them, and ended in borrowing that was treated as a cash flow solution rather than as the cost of not collecting. The debt was the last link and it was the only one being managed.
The Cash Flow Cycle System was the system that wasn't in place, which is what made $365,000 invisible, and the Job Profitability System wasn't in place either, so the borrowing cost couldn't be attributed to anything. Once the first was installed the debt had a source of repayment that didn't require a lender.
WHAT CHANGED, WEEK BY WEEK.
THE NUMBERS, NOT THE FEELING.
None of this required a new customer or a higher price. The $365,000 had already been earned and the debt existed because nobody was responsible for collecting it, so installing the routine and clearing the balance were the same piece of work.
Total time from first call to all debt cleared: 120 days. The collections routine and the billing calendar are still in use, which is why the debt hasn't returned.
DOES THIS SOUND FAMILIAR?
The contractors this describes usually recognise three or four things at once. There's borrowing in the business that exists to cover work already performed. Nobody's job description includes collections. The receivables aging has invoices on it older than 90 days that have stopped being discussed. And material or equipment gets bought early on most jobs, so the cash goes out well before the first application is approved.
If two or more of those are true, the money is probably already earned and held somewhere else, which is a far easier problem than the one it feels like.
See how CFOS applies to electrical subcontractors specifically on theElectrical Operating System page, or book a 20 minute call. Nothing gets sold on it and nothing gets proposed.
FREQUENTLY ASKED.
