Accounts receivable and collections field guide for plumbing contractors

Accounts receivable and collections, defined

Accounts receivable, or AR, is the money customers owe you for work you have already done. The job is finished, the material is in the wall, the labor is paid, and the only thing missing is the cash. Collections is the set of steps that turns that owed money back into cash, and turns it fast.

Every day an invoice sits unpaid, you are the bank. You bought the copper, you ran payroll, you paid the supplier, and the customer is using your money interest-free until they pay you. That is what an open receivable really is. It is a loan you made without meaning to, at zero percent, to someone who may or may not pay it back.

A plumbing company has two AR problems that look the same on the books and are not. The first is slow paying customers, which is a collections problem. The second is slow invoicing, which is a problem you cause yourself. Most shops blame the first and own the second. The estimate set the price and the flat-rate book set the ticket, but neither one collects the money. That part is on the office. See the estimating and flat-rate pricing guides for how the number gets built before any of this starts.

Why cash flow kills more contractors than bad work

Profit on paper is not cash in the bank. You can finish a year with a healthy profit on the P&L and still bounce a payroll, because the profit is sitting in receivables and the bank account is empty. More small contractors go under from cash flow than from bad workmanship. The work was fine. The money came in slower than it went out.

Here is the trap. Payroll runs every week or two and it does not wait. The supply house wants its money in 30 days and will put you on credit hold if you stretch it. Your truck payment, your insurance, your rent all hit on schedule. Meanwhile a chunk of your revenue is parked in invoices that are 45, 60, 90 days out. You are profitable and broke at the same time.

Growth makes this worse, not better. A bigger year means more material bought up front, more labor financed while you wait, more cash tied up in jobs that have not paid yet. Plenty of shops have grown themselves straight into a cash crisis. The remodel that doubled revenue also doubled the money you have floating on the street. Cash flow is the number that kills the company. Watch it harder than you watch profit.

Invoice the same day

The fastest, cheapest improvement to your cash flow costs nothing and is entirely inside your control: send the invoice the day the work is done. Days to invoice are days you wait. If the tech finishes Tuesday and the invoice goes out the following Monday, you added six days of float to every job before the customer has done anything wrong.

Slow invoicing is the number one self-inflicted AR problem in the trades. The work is finished and paid for on your end, and the only thing standing between you and the money is paperwork sitting in a truck or a shoebox. A pile of un-invoiced tickets is cash you earned and have not asked for. Customers do not feel any urgency to pay an invoice you have not sent, and the longer the gap between the work and the bill, the more they forget what the work was and the more they question the charge.

The fix is to invoice from the field, at the job, before the tech leaves. The visit is documented, the price comes off the flat-rate book or the agreed estimate, the customer signs on the spot, and the invoice is in their inbox before the van is back on the road. Same-day invoicing alone can pull a week or more out of your average collection time, and it is free.

Collect at the door

The best AR is no AR. On service and repair work, the right time to collect is at completion, while you are standing in the customer's house and they are happy the drain is running again. Money collected at the door never becomes a receivable, never ages, never needs a reminder, and never gets written off. It is the cheapest dollar you will ever collect.

Customers expect to pay the plumber when the work is done, the same way they pay the dentist on the way out. The friction is almost always on your side, not theirs. If the tech cannot take a card in the kitchen, you just turned a paid job into a 30-day receivable for no reason other than tooling. Tap, chip, or a quick card entry on a phone closes the job and closes the money in the same minute.

This is where a field tool earns its keep. With FieldOS, the same app that holds the visit, the photos, and the flat-rate price also takes the payment at the door, so the tech finishes the work, shows the price, and runs the card before they pack up. The job and the cash close together. Set the default to collect on completion for service calls, and treat an unpaid service ticket as the exception that needs a reason, not the norm.

Set payment terms in writing, up front

Payment terms are the deal for when you get paid, and they only protect you if they are in writing before the work starts. Due on receipt means the invoice is payable when sent. Net 15 or Net 30 give the customer a set number of days. The terms you never wrote down are the terms you will argue about later.

For residential service, due on receipt or payment at completion is normal and reasonable. For commercial and builder work, you are often forced into Net 30 or longer, but every day past Net 15 is a day you finance their business. Shorter terms collect faster. The shop that runs due-on-receipt on service and the shop that runs Net 30 on the same work have very different bank balances at the end of the month, doing identical jobs.

Put the terms on the estimate, the work order, and the invoice, in the same words every time. Spell out what happens when payment is late, including any finance charge, because a late fee you never disclosed is a late fee you cannot really enforce. Terms are not the place to be vague or shy. The customer who balks at clear payment terms up front is telling you something about how they pay.

Take a deposit and bill the milestones on big jobs

On any job large enough that the material bill alone would hurt to float, you take a deposit up front and you bill progress as you go. Do not finance the whole job and wait for one big check at the end. That is the structure that drains the bank account and hands the customer all the power.

A common structure on a sizable residential or light-commercial job is a deposit at signing to cover material and mobilization, progress payments tied to defined milestones, and a final payment at completion. The deposit means you are not buying their fixtures with your cash. The progress draws mean that if the customer stops paying at the third draw, you stop at the third draw, and you are not out the whole job. Bill the milestones as you hit them, not in one lump at the end.

Tie each draw to something visible and verifiable: rough-in passed inspection, fixtures set, system tested. Vague draws invite disputes; a draw tied to a passed rough-in inspection is hard to argue with. Check your state rules on deposit limits for home-improvement work, because some states cap how much you can collect up front, and confirm the structure with your attorney on the larger contracts. The estimating guide covers how to break the job into those billable phases at takeoff.

What is AR aging and how do you use it?

AR aging is a report that sorts every unpaid invoice by how old it is, into buckets: current, 1 to 30 days past due, 31 to 60, 61 to 90, and 90 plus. It is the single most useful collections tool you have, because it tells you exactly where your money is stuck and which accounts to call today.

The rule is simple and it is the whole game: work the oldest first. Money gets harder to collect the older it gets. A balance that is 30 days late is a phone call. The same balance at 90 days is a fight, and at 120 days it is often a write-off. The longer it sits, the more the customer treats it as money they already spent, the more likely they have moved or gone out of business, and the more your lien deadlines have quietly expired behind you.

Pull the aging at least weekly and read it like a job list. Anything that has crossed into a new bucket gets action that day. The shop that reviews aging every week and the shop that looks at it once a quarter are not in the same business. One has a collections process; the other has a surprise coming.

Days sales outstanding, the number to shrink

Days sales outstanding, or DSO, is the average number of days it takes you to collect after you bill. It is the one number that tells you whether your AR is getting better or worse over time. Calculate it by dividing your total receivables by your credit sales for a period, then multiplying by the number of days in that period.

Say you have 90,000 dollars in receivables and you billed 300,000 over the last 90 days. That is 90,000 divided by 300,000, times 90 days, which is 27 days DSO. On average, every dollar you bill takes 27 days to come home. Track that number month over month. If it is climbing, your collections are slipping even if revenue looks fine.

There is no single right DSO, because it depends on your mix. A pure residential service shop collecting at the door should run very low, in the single digits or low teens. A shop heavy in commercial and builder work carrying Net 30 and retainage will run 45, 60, or higher, and that is normal for the work. Construction routinely runs higher DSO than other industries because of milestone billing and long terms. What matters is the trend and how it compares to your own terms. If your DSO is well above your stated terms, customers are paying late and nobody is pushing.

Run automatic reminders, polite and persistent

Most late payments are not deadbeats. They are busy people who set the invoice aside and forgot. A steady reminder sequence collects a surprising amount of money with no confrontation at all, because it simply puts the bill back in front of someone who meant to pay it.

The sequence that works is before due, at due, and past due. A friendly reminder a few days before the due date heads off the honest oversight. A note on the due date. Then escalating reminders at set intervals past due, commonly around 15 and 30 days late, each one a little firmer than the last. Polite but persistent beats angry and occasional. The customer who hears from you on a predictable schedule learns that your invoices get followed, and your invoices move to the top of their pile.

Doing this by hand is where it breaks down, because the office gets busy and the reminders stop. This is exactly the kind of thing a field tool should run for you. FieldOS can send the reminder schedule automatically off the invoice date, so before-due, at-due, and past-due notices go out on time whether or not anyone in the office remembers, and the response loops back to the same place that holds the job. Automation here is not about being slick. It is about the reminders actually going out every time instead of when someone gets around to it.

Make it stupid easy to pay

Every bit of friction between the customer and paying you is a delay you are choosing. If the only way to pay is to mail a check, you will get paid at the speed of the postal service and the customer's checkbook habits, which is to say slowly. The more ways you let people pay, and the faster each one is, the faster the money lands.

The options that move cash are card tap or chip in person, a click-to-pay link on the emailed invoice, ACH bank transfer for the larger commercial balances, and text-to-pay for the customer who never opens email. A pay link the customer can tap from their phone the moment they get the invoice collects far faster than an invoice that asks them to dig out a checkbook and find a stamp. ACH costs you less than cards on big-dollar invoices, which matters once the balance is large.

This is the other half of collecting at the door and running reminders: the reminder is only as good as the pay button attached to it. Put the pay link right on the invoice, let the tech run a card in the field, and let the customer pay from the same message that reminded them, so there is no step where they have to go find another way to send money. Remove the excuse to wait and most people just pay.

Card processing fees and surcharges

Card processing costs you money, commonly around 2 to 3.5 percent of the ticket depending on the card and your processor. On a 300 dollar service call that is real but small. On a 30,000 dollar repipe it is a number worth managing. You have two clean ways to handle it: price it into your rates so every customer covers the average, or add a surcharge so the card-paying customer covers their own cost.

Surcharging is where you have to be careful, because the rules vary by state and by card network. The card networks cap the surcharge, commonly at around 3 percent for Visa and a bit higher for Mastercard, and if you take both you are held to the lower cap. A few states prohibit surcharging outright, and others limit it to your actual cost of acceptance or require specific signage and a separate line item on the receipt. The networks also require advance notice before you start.

The practical move for most shops is to price the average card cost into the flat-rate book so the posted price is the price, and to consider an ACH or cash option on the large commercial invoices where the percentage turns into real dollars. If you do surcharge, confirm the rules for your state and disclose it clearly, and check the current network limits and your merchant agreement before you set the percentage. This is a place to talk to your processor and your accountant, not to guess.

How do you collect an unpaid invoice?

You collect an unpaid invoice by escalating on a schedule, firm but professional, and never letting it go quiet. The mistake is treating each past-due account as a one-off and forgetting about it between reminders. Collections is a process, not a mood. The same steps, every account, every time.

The ladder runs roughly like this. A reminder when it first goes late, by email and text. A phone call once it is two to three weeks past due, because a live voice collects far more than another email, and the call is also where you find out if there is a dispute hiding behind the silence. A written past-due notice that restates the balance, the terms, and the late charge. Then a final notice that states plainly what comes next: lien filing where you have the right, referral to a collection agency, or a small-claims filing. Each step is firmer, and each one has a date attached.

Stay professional the whole way. You are protecting a balance and often a relationship, and abusive collections can also run you into legal trouble. Firmness is in the consistency and the clear consequence, not in the volume. The customer who knows you will follow every step to the end pays sooner than the one who has learned your final notice is the last they will ever hear from you.

What is a mechanics lien?

A mechanics lien is a legal claim against the property you improved, filed when you have not been paid for the labor or material you put into it. It clouds the title, which means the owner generally cannot sell or refinance cleanly until it is resolved, and that pressure is why a properly preserved lien right is the strongest collection tool a contractor has. It attaches to the building you worked on, not just to the customer's promise to pay.

The power of the lien is mostly in having the right, not in filing. Most disputes settle once the owner understands you can and will lien the property, especially when there is a lender or a sale in the picture. But the right is not automatic and it is not forgiving. Lien law is full of notices, deadlines, and exact procedures, and missing any one of them can wipe out the right no matter how clearly the money is owed.

Treat the lien right as something you preserve early on every job that qualifies, even when you fully expect to be paid normally and never file. The deadlines, who must be notified, and what counts as the start of work all vary by state and by whether the project is residential or commercial. This is a topic to set up with a construction attorney or a lien service for your state, once, so the process runs the same on every job after that. Preserve the right early. You can always choose not to use it.

The preliminary notice keeps the lien option open

In many states, the preliminary notice is the document that preserves your lien rights, and it has to go out near the start of the job, not when payment goes bad. It is a notice sent to the owner, and sometimes the general contractor and the lender, telling them you are furnishing labor or material to the property. Send it late or not at all and you can lose the lien right entirely, regardless of how strong your claim is.

The deadlines are short and they are unforgiving. Across the states that require it, the window commonly runs somewhere from about 10 to 90 days after you first furnish labor or material, depending on the state and the project type. California, for example, generally calls for the notice within 20 days of first furnishing, and sending it late limits your claim to the work done shortly before you sent it. Texas runs its own monthly-notice schedule keyed to the month the work was provided. The exact rule for your state controls.

The takeaway is procedural, not legal advice: build the preliminary notice into your job-start routine so it goes out automatically on qualifying jobs, before anyone is worried about getting paid. Most lost recoveries are lost on the notice, not on the merits of the debt. Confirm whether your state requires it, on which jobs, and by when, with an attorney or a lien service, and make it part of opening the job.

Check credit before you extend terms on big commercial work

Before you hand a new commercial customer or a builder a big balance on Net 30, find out whether they pay. Extending terms is extending credit, and you would not lend that much money to a stranger without asking around. A bad payer is a bad payer no matter how good the job looks.

The screening does not have to be formal. Ask for trade references and actually call them. Ask other subs on the project, or your supply house, who tends to know who pays slow. For a large enough exposure, pull a business credit report. A general contractor with a reputation for stretching subs to 90 days and nickel-and-diming the final draw is telling you exactly how this will go before you sign.

When the screening comes back shaky, you do not have to walk away, but you change the terms to protect yourself: a larger deposit, tighter progress draws, a joint-check agreement, or a lien-rights setup you take seriously from day one. The worst position is full faith and a large balance to a customer nobody can vouch for. Set the terms to the risk, and price the slow payer accordingly or pass.

Commercial wrinkles: pay-when-paid, joint checks, and retainage

Commercial and builder work comes with payment structures that residential service never sees, and each one changes when and whether you get paid. Know them before you sign, because they are written into the subcontract and they are not in your favor by default.

Pay-when-paid and pay-if-paid clauses tie your payment to the general contractor getting paid by the owner. The wording matters enormously and the enforceability varies by state, so this is one to read carefully and run past an attorney before you sign a subcontract that contains it. A joint-check agreement names you and the GC together on the check, which can protect you when you are worried about money flowing down the chain. Retainage is the percentage, often 5 to 10 percent, that is held back from every progress payment until the whole project closes out, sometimes many months after your work is done and tested.

Retainage is real money sitting in someone else's account, and it is the last thing to come and the easiest to forget. Track it as its own line in your AR so it does not vanish, and chase the retainage release as actively as you chase any other past-due balance. On a big job the retainage can be your entire profit margin, parked and waiting.

Often it is a dispute, not a deadbeat

When an invoice goes quiet, the reflex is to assume the customer is dodging you. Just as often, they are sitting on it because they have a problem with the work, the scope, or the price, and they have not told you. A silent invoice is frequently a dispute in disguise, and you cannot collect a dispute by sending another reminder.

This is why the phone call beats the third email. You call, and instead of getting paid you find out the customer thinks the price was higher than quoted, or a fixture is not what they expected, or there is a callback they have been stewing about. Now you have something you can fix. Resolve the dispute and the payment usually follows within days, because the money was never really the issue. The issue was the thing they would not say until someone asked.

The best dispute is the one that never happens, and clear documentation is what prevents it. A signed estimate or work order that spells out the scope and the price, photos of the conditions and the finished work, and a signature at completion leave very little room to argue later. This is where good field documentation pays off twice: once on the job and again when someone questions the bill. The estimating guide covers building a scope and a number the customer agreed to before the work started, which is your best defense when they question it after.

When to write it off, send it to an agency, or sue

Some receivables never come home, and pretending otherwise just keeps a dead number on your books. A balance that has aged past 90 or 120 days, survived the full reminder and call sequence, and is not a fixable dispute is a candidate for the harder options. Decide deliberately rather than letting it drift.

You have three real exits. A collection agency takes a cut, commonly a large one of whatever it recovers, but it gets the account off your desk and applies pressure you cannot. Small-claims court works for amounts under your state's limit and does not require a lawyer, though you still have to collect on a judgment after you win, which is its own task. And the write-off: you formally book the balance as bad debt, which at least cleans up your AR and may carry a tax treatment your accountant can use.

Track your bad-debt percentage, your written-off dollars as a share of revenue, because it is a direct readout on how well the front end of this system is working. High bad debt usually traces back to the start, not the end: weak deposits, no credit screening, slow invoicing, lien rights nobody preserved. Fix the intake and the write-offs shrink. Talk to your accountant about how and when to book a write-off, since the timing and the tax handling are theirs to advise.

Connect invoicing, payment, and the books

The cleanest AR system is one where the invoice, the payment, and the accounting are the same record, not three records someone re-types between. Every hand re-entry is a place for a number to go wrong, a payment to get missed, or an invoice to never make it into the books at all. Re-keying is also slow, and slow is the enemy of everything in this guide.

When the field invoice flows straight into your accounting, your AR aging is real-time instead of a snapshot from whenever the bookkeeper last caught up. You can pull the aging on any morning and trust it. A payment taken at the door marks the invoice paid everywhere at once. The reminder sequence knows what is actually outstanding because it is reading the same data the books read.

This is the case for running invoicing and payments through one field tool rather than a stack of disconnected apps. FieldOS captures the visit, builds the invoice off the flat-rate price, takes the payment, and keeps the AR in one place, so the path from finished work to recorded cash is one flow instead of a relay of re-entry. Confirm how it lines up with your accounting setup with your bookkeeper, but the goal is one record from job to cash, not three.

The metrics that tell you if it is working

You manage AR by a small set of numbers, watched on a regular cadence. Track them monthly, read the trend, and act on the ones moving the wrong way. The goal is not a perfect score on any one of them; it is catching a slide early, while it is still a phone call and not a write-off.

Four numbers carry most of the weight. DSO tells you the average days to collect and whether it is trending up or down against your terms. The aging buckets tell you where the stuck money is, and the dollars sitting past 60 days are the ones to worry about. Percent collected at completion tells you how much service work never becomes a receivable at all, and you want that high. Bad-debt percentage tells you how much you are losing entirely, and you want that low.

The six failures that drain the bank account

The same handful of mistakes show up in nearly every cash-strapped shop. None of them are about the quality of the plumbing. They are all about the money after the work is done.

Slow invoicing adds days you wait to every single job. No deposit on the big work means you finance the whole job with your own cash and carry all the risk. Never reviewing the AR aging means you find out an account went bad when you finally look, instead of when it first slipped. Not collecting at the door on service turns paid work into receivables for no reason. Missing the mechanics-lien or preliminary-notice deadline throws away your best collection tool before you ever needed it. And letting 90-plus-day balances sit untouched lets collectible money age into a write-off. Each one is fixable, and each one is costing a shop somewhere its payroll this week.

Field and office checklist

What to document on AR and collections

AR disputes and lien deadlines are won or lost on the record. The shop that can produce the signed scope, the dated invoice, the notice it sent, and the log of every collection contact is in a different position than the shop working from memory. Keep the paper, because the paper is what holds up when money and the calendar are against you.

Common mistakes

• Slow invoicing that adds days you wait before the customer has done anything.
• Taking no deposit on a big job and financing the entire thing with your own cash.
• Never reviewing the AR aging, so a bad account surfaces only when you finally look.
• Not collecting at the door on service and turning paid work into receivables.
• Missing the mechanics-lien or preliminary-notice deadline and losing the right entirely.
• Letting 90-plus-day balances sit until collectible money ages into a write-off.
• Treating a silent invoice as a deadbeat when it is really an unspoken dispute.
• Re-keying invoices and payments by hand, where numbers get dropped and missed.

Standards, references, and where to get the rules right

AR and cash-flow management lean on standard accounting practice. DSO and the aging report are common financial measures your accountant uses across industries, and construction is known for running higher DSO than most because of milestone billing, long terms, and retainage. Set your targets against your own terms and your own history, not a generic benchmark, and have your bookkeeper produce the aging and DSO on a regular cadence.

Mechanics-lien and preliminary-notice law is set by each state, and it is the area where getting it wrong costs the most. The deadlines, who must receive notice, what triggers the clock, and the difference between residential and commercial jobs all vary by jurisdiction. Set this up once with a construction attorney or a lien service for your state, build the notices into your job-start routine, and confirm any deadline against current state law before you rely on it. Preserve the right early, on every qualifying job.

Credit-card surcharge rules come from your state law and the card-network agreements together, and they change. The networks cap the surcharge and require advance notice and disclosure, some states prohibit or limit it, and the safe default is to price card cost into your rates and confirm any surcharge with your processor. Across all of it the through-line is the same: invoice fast and collect at the door, work the aging oldest first, and preserve the lien right. For the rest, your accountant handles the books and the write-offs, and your attorney handles the lien deadlines and the subcontract terms.

Terms and definitions

AR and collections carry their own vocabulary, and the same idea shows up under a few names across your accounting software, your invoices, and a subcontract. These are the terms used in this guide.

Accounts receivable (AR)

Money customers owe you for work already completed and billed

DSO (days sales outstanding)

Average days to collect after billing; receivables divided by credit sales, times days in the period

AR aging

A report sorting unpaid invoices by age into current, 30, 60, 90, and 90-plus buckets

Net terms / due on receipt

When payment is due; Net 30 means 30 days from invoice, due on receipt means when sent

Retainage

A percentage, often 5 to 10 percent, held back from progress payments until project closeout

Mechanics lien

A legal claim against the improved property for unpaid labor or material

Preliminary notice

An early notice to the owner that preserves lien rights; deadline varies by state

Bad debt

A receivable judged uncollectible and written off the books

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