DAYS IN AR IS THE NUMBER YOUR CASH FLOW LIVES OR DIES BY
Days in AR (sometimes called DSO — days sales outstanding) measures the average number of days between billing and collection. For commercial specialty subcontractors, the realistic benchmark is 45–65 days. Below 45 days signals a tight collections operation; above 65 days signals slow GCs, billing problems, or both. A $4M sub running at 75 days in AR has $821K stuck in receivables against a $670K theoretical baseline — that’s $150K of working capital working against you instead of for you. Tracking it monthly and driving it down is one of the highest-leverage moves available.
You can grow revenue, you can win bigger jobs, you can hire better crews. Until days in AR is under control, the cash side of the business stays broken.
HOW THE NUMBER WORKS
The standard formula:
Days in AR = (Average AR ÷ Revenue) × Days in Period
Run on a trailing 12-month basis. If your average AR over the last 12 months was $900K and your annual revenue was $4.5M, the calculation is ($900K ÷ $4.5M) × 365 = 73 days. That means your average dollar of billing sits as a receivable for 73 days before becoming cash.
Some firms calculate this on a 90-day rolling basis to catch trend changes faster. Both are valid; the 12-month version smooths seasonality, the 90-day version surfaces recent collection problems sooner. SPM tracks both on the monthly CEO Report — trailing 12 for the strategic view, trailing 90 for the operational view.
WHAT’S NORMAL BY TRADE
| TRADE | HEALTHY RANGE | STRETCH TARGET | PROBLEM ZONE |
|---|---|---|---|
| Electrical | 45 – 55 days | Under 45 | Over 65 |
| Civil / Site / Grading | 50 – 60 days | Under 50 | Over 70 |
| Concrete | 45 – 55 days | Under 45 | Over 65 |
| Structural Steel | 55 – 70 days | Under 55 | Over 80 |
| Waterproofing / EIFS | 55 – 65 days | Under 55 | Over 75 |
| SWPPP / Erosion | 50 – 60 days | Under 50 | Over 70 |
Trades with longer-duration jobs and heavier retention exposure run higher days in AR — structural steel, marine, waterproofing on long building cycles. Trades with shorter billing cycles and less retention exposure run lower. Don’t benchmark against the wrong trade; the structural pattern matters more than absolute numbers.
THREE STRUCTURAL CAUSES OF SLOW COLLECTIONS
SLOW BILLING ON YOUR SIDE
Days in AR isn’t just collection speed. It’s the gap from work-performed to cash-received. If pay apps go out on the 5th of the next month instead of the 25th of the same month, you’ve added 20 days to days-in-AR before the GC even sees the bill. The billing cycle is the first lever — tightening the submission cadence pulls 10–20 days off the average without any change to GC behavior.
STALE INVOICES NOBODY’S CHASING
The 60-day invoice has been sitting in the GC’s AP queue for three weeks. Nobody’s called. Nobody’s emailed. Nobody’s flagged the PM. The invoice ages until eventually someone notices it’s now 90+ days and a collection problem starts. Most aged AR isn’t disputed — it’s just stuck because nobody’s working it. A standing collections cadence (calls on day 30, escalation on day 45, formal demand on day 60) keeps invoices moving.
RETENTION CLASSIFIED WRONG
If retention sits in AR as a current receivable but it’s not actually collectible for another 8 months, your days-in-AR number is inflated by a receivable that’s structurally slow. Some subs split retention out of AR entirely for tracking purposes — reporting AR aging separately from retention aging. The benchmark numbers above assume retention is being reported separately. Mixed together, the AR number always looks worse than it is.
WHAT ACTUALLY WORKS
DAY 25 OF MONTH N+1: STANDING FOLLOW-UP CALL
You submitted the pay app on day 25 of month N. By day 25 of month N+1, the GC should have approved it, billed the owner, and either received payment or be close to it. If nothing has happened, a single follow-up call usually surfaces the holdup — missing lien waiver, disputed line item, owner approval delay. Most GCs respond to a polite, specific call. Build this into the workflow as a standing action item, not a panic call when the invoice ages.
DAY 45: ESCALATION TO PM, NOT JUST AP
If a pay app is still unpaid at day 45 and the AP team hasn’t resolved it, escalate to the GC’s PM. AP teams move slow. PMs care because their job costs are running but their billings to the owner aren’t flowing. Often the PM intervenes within 48 hours of being looped in. Going around AP isn’t adversarial — it’s the right move when the standard path is stuck.
DAY 60: FORMAL DEMAND LETTER
If the invoice is still unpaid at day 60, send a formal demand letter. Not because you’re going to litigate — because the letter clarifies the situation. The GC has to formally explain why payment is being withheld, which usually surfaces a dispute that can be resolved. If there’s no actual dispute, the letter accelerates payment because the next step is mechanic’s lien or bond claim language. Most GCs prefer to pay rather than escalate.
WEEKLY AR REVIEW WITH OWNER OR CONTROLLER
Every Monday morning, someone walks the aged AR report. Anything over 30 days gets discussed. Anything over 45 days gets an action item. Anything over 60 days gets owner attention. Weekly cadence keeps the entire AR position visible and prevents the “I didn’t know that one was that old” surprise. The discipline matters more than the format — sticky notes work as well as software if the review actually happens.
TIE BILLING SPEED TO COLLECTIONS SPEED
The fastest way to improve days in AR isn’t faster collections — it’s faster billing. A 5-day improvement in pay app submission cadence pulls 5 days off days-in-AR for every dollar billed. Pair the billing fix with the collections rhythm and the number moves substantially. The two together produce results neither one delivers alone.
WHAT 10 DAYS ACTUALLY MEANS
The math compounds. For a $4M annual revenue sub:
- $4M annual revenue equals approximately $11K per calendar day in billings.
- Days in AR of 75 means roughly $825K tied up in receivables on average.
- Days in AR of 55 (the healthy benchmark) means roughly $605K in receivables.
- The 20-day improvement frees $220K of working capital. Same revenue. Same business. Different cash position.
That $220K is the difference between a stressed LOC and a comfortable cash cushion. Between needing to delay a hire and being able to make it. Between bidding aggressively and pricing in margin to cover the cash gap. Days in AR is a financial control metric that drives operational decisions across the business.
You can’t bid your way to better cash flow. You can collect your way there.
HOW SPM RUNS AR DISCIPLINE
Days in AR sits on the monthly CEO Report alongside cash position, working capital ratio, and gross margin. Every month the number gets reviewed, the trend gets discussed, and the operational actions get adjusted. Weekly aged AR walks happen at the controller level. The collections cadence runs on auto-pilot — it doesn’t depend on the owner remembering to chase invoices.
The first 90 days of any SPM engagement typically drives days in AR down by 10–25 days through nothing more than billing rhythm improvements and a standing collections process. No new GCs. No payment-term renegotiation. Just doing the existing collections work on a discipline the business didn’t have before.
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