Cash flow is the lifeblood of any contracting business, and it’s especially important during times when work is slowing, or job starts are delayed.
Knowing your average Accounts Receivable (AR) collection days can help you manage your cash flow better so that you don’t end up in a situation where you don’t have enough money to pay bills when they come due.
What are “Average AR Collection Days?”
Accounts receivable (AR) collection days measure the average number of days it takes for customers to pay their invoices after they are sent out. It’s an important statistic for contractors because it helps you understand how quickly their customers are paying their bills and how much time you need to allocate for collecting payments from clients. Knowing this information will also help you evaluate their payment processes and can make forecasting future cash flows easier.
Why You Should Track Your AR Collection Days
Tracking your AR collection days allows you to be proactive about managing your cash flow. If you know that it typically takes 30-45 days on average for customers to pay their invoices, then you can plan ahead and make sure that there is always enough money on hand to cover expenses until those payments come in.
This will help you avoid having to borrow money at high-interest rates, which could put a serious dent in your profits. Additionally, tracking your AR collection days will help you identify any problems with billing processes or customer service issues that could lead to delays in payment since those may be causing customers not to pay as quickly as expected. This way, you can address any issues promptly and ensure that payments are coming in on time.
Having control over your cash flow is essential for the success of your contracting business, especially during times when work is slowing, or job starts are delayed.
Grab this easy-to-follow formula, “Calculating Avg AR Collection Days” and calculate your average AR collection days today!