Industries with the highest average accounts receivable collection days
Some industries experience significantly longer payment cycles than others. This article explores the top sectors with the highest accounts receivable collection days and offers practical strategies to benchmark and improve your AR performance.
In many industries, businesses face varying timelines for collecting payments, but some sectors consistently experience longer accounts receivable collection periods than others. In this blog, we’ll explore the industries that historically have high accounts receivable days and what that means for their businesses.
10 industries with longer average collection periods
Accounts receivable days (also known as Days Sales Outstanding, or DSO) represent the average number of days it takes a company to collect payment after a sale has been made. The following industries tend to have longer collection periods, indicating delayed cash flow cycles compared to others:
- Management of companies and enterprises – 125.1 days
- Oil and gas extraction – 110.9 days
- Technical and trade schools – 109.3 days
- Automotive equipment rental and leasing – 104.4 days
- Outpatient care centers – 99.0 days
- Support activities for mining – 90.8 days
- Architectural, engineering, and related services – 74.4 days
- Scientific research and development services – 70.8 days
- Foundation, structure, and building exterior contractors – 67.5 days
- Other heavy and civil engineering construction – 66.5 days
What does this mean for those industries?
Seeing high accounts receivable numbers like those listed above can be surprising, but they aren’t necessarily a red flag, especially within industries where extended payment cycles are the norm. While every business aims to reduce its collection period, factors such as the company’s business model and industry standards play a significant role.
For instance, in the construction industry, an average collection period of around 70 days is fairly typical. You’re likely in good shape if your business is the same and in line with that benchmark. However, if your receivable days are significantly higher, it may indicate deeper issues with invoice collection and cash flow management.
Best practices for reducing accounts receivable collection periods
Long accounts receivable days can strain your cash flow and slow business growth, but they’re not set in stone. With the right data, benchmarking, and process improvements, you can take control of your collections and bring your AR days down to a healthier level. Here are some practical steps to help you get started:
Calculate Accounts Receivable Days (DSO) and track AR metrics
The first step in evaluating your company’s AR performance is knowing where you stand. The formula for accounts receivable days is (Accounts Receivable / Revenue) x Number of Days in Year. There are many other accounts receivable metrics to measure and track, so never let this be the only indication of the health of your invoice collection process.
Compare your businesses AR Days to industry benchmarks
Once you know your accounts receivable days, it is essential to compare it to industry averages. If you’re right in line with your peers or lower, that’s good news. If you’re higher, then you know there is some work to be done to reduce your accounts receivable days.
Actionable steps to reduce the accounts receivable collection period
Once you understand where you stand in comparison to your peers, it may be time to start making adjustments to improve your invoice collection strategy to reduce average accounts receivable days. You’d be surprised at how just a few simple changes can make a big impact. For example:
- Finding ways to get your invoices to customers faster, such as electronic invoicing instead of snail mail.
- Calling customers after invoice delivery to ensure they received it, and if there are any problems that might delay payment.
- Sending monthly statements or payment reminder emails with invoice due dates.
- Using a business credit application template before extending credit to any customer
Streamline your accounts receivable process
Understanding which industries typically face longer accounts receivable collection periods is only the first step. Taking action to improve your AR processes can have a direct impact on your cash flow, customer relationships, and overall financial health.
If your business is ready to reduce AR days and streamline collections, explore how Sage AR Automation can help you get paid faster and work smarter. Or, learn more about our accounts receivable solutions tailored to your industry needs.
