AR Days

The formula, and then the real question

AR Days = (Accounts Receivable ÷ Annual Revenue) × 365

Use a full year of revenue and the receivables you are actually trying to collect. A receivable you know will never arrive is not a collection problem. It is a write-off you have not taken yet. You may know this as debtor days or DSO. Same measure, older vocabulary.

Now the version that matters, because the formula is not the lesson:

When do you invoice, and what did you ask for?

That is it. That is nearly the whole number. Everything else is theater around those 2 decisions, and both of them are yours.

Every day of it is your money, sitting somewhere else

One day of AR is one day of revenue. At $5M a year that is roughly $13,700 a day, so pulling 10 days out releases about $137,000.

Read that again, because founders reliably misread it. That is not $137,000 of new business. Nobody sold anything. You did not raise a price or find a customer. That money was already earned, already owed, already yours, and it was simply arriving later than it needed to. You went and got it.

There is no other lever in this business that pays six figures for administrative housekeeping.

Bill earlier. That is the whole first half.

The single most common billing rhythm we meet is: work all month, invoice on the 1st, terms of net 30. That founder waits up to 60 days for work finished on day 1, and calls it normal.

It is not normal. It is a choice nobody revisited.

• Invoice more often. Monthly is a habit, not a law. Some of our clients invoice weekly. Semi-monthly costs you nothing and pulls the average forward by half a cycle.
• Bill as early as your agreement allows. If the agreement lets you bill on signature, on milestone, or on dispatch, bill then. The extreme version of this is getting paid before you start, which is the best lever on the board and has its own entry.
• Fix the agreement, not the follow-up. Most receivable problems are billing problems wearing a disguise. If collections is hard every month, the contract is usually the thing that is broken.

Ask for terms that mean something

Net 30 is a convention, not a law of physics. It got into your contract because it was in the last contract.

We ask for 21 days, and we get it more often than founders expect, because almost nobody asks. This is our practice, not a benchmark we can prove; treat it as a place to start negotiating rather than a number to quote at anyone.

"Due upon receipt" is the worst term on the menu. It sounds urgent and it reads, to the person on the other end, as whenever you get around to it. A term with no date has no deadline. Payables clerks work off dates. So give them one: not "net 21" but "due September 22." A specific day gets paid on approximately that day. A vague term gets paid whenever the pile gets tall.

Remove the friction, all of it

Every extra step between a customer wanting to pay and the money moving is a day of AR you volunteered for.

• Autopay and ACH by default, set up when the agreement is signed, not chased later. Autopay is the only collections process that never forgets.
• Take the credit card. Yes, even at 3%. This is where we lose the room, and we will die on it anyway. Founders will happily wait 45 days to dodge a fee that costs less than the money being late. Getting paid on day 2 for 97 cents on the dollar beats getting paid on day 50 for 100. If the fee genuinely hurts, the answer is your pricing, not your payment options.

The principle underneath all 3: make it effortless to give you money. You can recover a processing fee with better pricing. You cannot recover the 6 weeks.

Nobody should be chasing anything

Here is a cost almost no one puts on the page. If a person on your payroll spends their week chasing invoices, that collections process costs you a salary every year, forever, and it produces nothing a customer would pay for.

So: automate the chase. A reminder sequence that fires on schedule, in writing, without anybody feeling awkward about it, is strictly better than a human doing it inconsistently. This is genuinely a good use of the AI tooling everyone is currently excited about, and it is one of the few places the excitement is warranted.

But automating the chase is the second-best answer. The best answer is building a business nobody has to chase. One agreement, signed once. Invoices that issue themselves on schedule. Payments that draft themselves. Nothing to remember, nothing to nag, nobody's Friday afternoon spent on it.

Setting that up is unglamorous, takes a few weeks, and is one of the highest leverage things a founder can do with a month. It reliably releases cash that was there the whole time.

Why this shows up as a crisis and not a metric

Month-end is a reporting convention. Payroll, rent, and your vendors do not care about it.

Plenty of businesses look fine on the 31st and cannot cover the 18th, because that is the week the money was out and nothing came in. AR days is the number that decides which weeks those are. Traditional monthly reporting cannot see that gap by construction, which is why founders keep getting surprised by a problem their financials technically already contained.

Which of these to fix first for your business, and what your customers will actually accept, depends on what you sell and who you sell it to. That is a reading of one company, and it is the kind of question a CFO Huddle™ exists to answer.