Days Sales Outstanding

If you own or manage a home service company—whether HVAC, plumbing, or electrical—cash flow is the lifeblood of your business. One key metric that directly impacts your cash flow is Days Sales Outstanding (DSO). Understanding and managing this KPI can make the difference between steady growth and constant financial stress.

What Is DSO and Why Is It Important?

DSO measures the average number of days it takes for your company to collect payment after a sale. In simple terms, it tells you how long your money is tied up in accounts receivable. A high DSO means you’re waiting too long to get paid, which can strain your cash flow. A low DSO means you’re collecting quickly, keeping your business financially healthy.

How to Calculate DSO

The formula is straightforward:

DSO = Accounts Receivable ÷ Average Daily Credit Sales

For example, if your accounts receivable is $50,000, your credit sales per day average $5,000:

DSO = (50,000 ÷ 5,000) = 10 days

This means, on average, it takes 15 days to collect payment.

What’s a Good DSO for Home Service Companies?

The target DSO varies by industry and business model. A manufacturing company that sells products on terms might have a DSO of 45–60 days. But for home service companies—where payment should ideally be collected at the time of service—DSO should be much lower, often under 10 days.

If your HVAC, plumbing, or electrical business has a DSO of 30 days or more, it’s a red flag. It means you’re essentially financing your customers’ repairs, which can choke your cash flow and limit your ability to invest in growth.

How Improving DSO Helps Your Cash Flow

Lowering your DSO puts cash back in your hands faster. For example, if you reduce your DSO from 30 days to 10 days on $100,000 in monthly sales, that’s $66,000 more in your account at any given time. That extra liquidity can help you:

• Pay technicians on time.
• Invest in marketing and growth.
• Avoid borrowing to cover operating expenses.

Tips for Managing DSO

• Collect at the time of service whenever possible.
• Offer easy payment options like credit cards or mobile payments.
• Follow up promptly on unpaid invoices.
• Train your team to communicate payment expectations clearly.

Ready to Take Control of Your Cash Flow?

At Contractor Excellence Consulting & Coaching, we help HVAC, plumbing, and electrical companies master KPIs like DSO to build stronger, more profitable businesses.
Schedule your free discovery call today and learn how we can help you improve cash flow and grow with confidence.