Cash Flow
What extending payment really costs you.
Every week a customer holds your money is a week you’re lending them cash interest-free.
The formula
DSO = (receivables ÷ revenue) × 30.
Days Sales Outstanding measures how long your money sits in someone else’s pocket. The bigger the number, the more cash you’re fronting on behalf of customers who already owe you.
Benchmarks by job type
Where your DSO should land.
- 01
Residential, cash on completion
0 to 5 days. Most home service trades. The cleanest cash cycle in the business.
- 02
Residential, Net 30
35 to 50 days. Reasonable for high-ticket jobs and repeat customers you trust.
- 03
Commercial, Net 30
45 to 75 days. Property managers and small commercial. Slower than the contract says.
- 04
Commercial, Net 60
75 to 110 days. Larger commercial accounts. Plan your cash around this, not the invoice date.
- 05
Municipal
90 to 180 days. Cities, counties, schools. Worth the work, brutal on cash.
The carry cost
$40k/month at 65-day DSO ties up $86,667 at all times.
At an 8% cost of capital (line of credit rate), that’s $578/month of pure carry cost. On Net 30 with the same volume, you tie up $40k and carry $267/month. The difference is $3,732/year burning for nothing.
Five moves shrink it: invoice the day work completes, email and mail both, auto-reminders at day 25 and day 35, offer 2/10 net 30, and stop extending credit to chronic slow payers.
The bottom line
AR aging is a leak. Plug it.
Invoice same day. Auto-remind. Offer 2/10 net 30. Stop extending credit to slow payers. Their next job needs a deposit.