How a Regional HVAC Contractor Reduced DSO from 62 to 19 Days — and Recovered $412K in 90 Days

Executive Summary

A Pacific Northwest mechanical services contractor with $6.2M in annual revenue engaged Ledger & Lane to address a systemic accounts receivable failure. At intake, the firm carried $847,000 in outstanding receivables with a days-sales-outstanding (DSO) of 62 days — nearly double the industry median of 34 days for specialty trade contractors.¹

Within 90 days of engagement, Ledger & Lane recovered $412,000 in outstanding invoices, reduced DSO to 19 days, and eliminated the need for 12 weekly labor hours previously dedicated to ad hoc collections activity. The client's annual bad-debt write-off rate declined from 4.1% of revenue to 0.6% — a $217,000 annualized improvement to the bottom line.

The Problem

The client operates a full-service HVAC and mechanical contracting business across three metropolitan markets, serving commercial property managers, general contractors, and municipal facilities. Revenue is generated through a mix of project-based contracts (60%) and recurring service agreements (40%).

Despite strong top-line performance, the firm's cash conversion cycle had deteriorated steadily over 18 months:

• No systematic follow-up: Invoices past 30 days received no consistent attention; past-due accounts were addressed only when cash shortages forced the owner to intervene
• Relationship aversion: The owner and senior staff actively avoided collections conversations with long-standing clients, citing concerns about damaging customer relationships
• Invisible costs: The firm had drawn $180,000 on its revolving credit facility — at 8.75% APR — to cover payroll while simultaneously carrying $847,000 in collectible receivables²

The business was effectively borrowing money at 8.75% to finance work it had already completed and been approved for. The cost of inaction was $15,750 per year in interest alone — before accounting for write-offs, lost opportunity, and the owner's time.

Results

Financial Impact Analysis

The total quantifiable first-year financial impact of the engagement breaks down as follows:

• Direct cash recovery: $412,000 (one-time, realized in first 90 days)
• Annualized write-off reduction: $217,000/year
• Interest expense elimination: $15,750/year
• Labor cost reallocation: Approximately $31,200/year (12 hrs/week × $50/hr blended cost)³
• Unbilled work recovered: $34,000 (one-time) — completed jobs that had never been invoiced, identified during Ledger & Lane's initial review

Against Ledger & Lane's engagement cost, the client realized a first-year ROI exceeding 8:1.

Key Takeaway

This case illustrates a pattern common among mid-market specialty contractors: strong operational execution paired with under-invested back-office infrastructure. The client's AR dysfunction was not a personnel failure — it was a systems failure. The same project managers who delivered excellent technical work were being asked to perform a fundamentally different function (collections) without training, tools, or time allocation.

By professionalizing the AR function and removing it from the operational workflow, the client simultaneously improved cash flow, reduced financial risk, and freed senior staff to focus on revenue-generating activity.

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