business · 2026-05-01
Quantify the cash impact of slow-paying customers — outstanding AR, average days sales outstanding (DSO), and cost of capital tied up.
| Monthly revenue | $250,000 |
| Average DSO (days) | 65 |
| Your cost of capital % | 10% |
| Bad debt write-off rate % | 1.5% |
| Avg AR outstanding | $534,247 |
| Annual bad debt write-off | $45,000 |
| Opportunity cost on tied-up cash | $53,425 |
Every dollar in accounts receivable is a dollar you've delivered the work for but haven't collected. While it sits in AR, it's tying up your operating capital at your cost-of-capital rate. Plus a percentage will never collect (bad debt).
avg AR = (annual revenue ÷ 365) × DSO days
opportunity cost = AR × your cost of capital
bad debt = revenue × bad debt rate
total cash cost = opportunity cost + bad debtDefault scenario: $250k/mo, 65-day DSO, 10% cost of capital, 1.5% bad debt rate:
Pull the latest CRO Forum / Atradius B2B payment practices report for benchmark. Software/SaaS: 35-45 days. Construction: 60-75 days. Healthcare: 45-60 days. Retail (B2C): essentially 0 (paid at sale). The 'right' DSO is industry-relative; don't aim for 30 if you're in construction.
Trade-off: factor at 1.5-3% per 30 days of advance for guaranteed cash. If your cost of capital is 10% but factoring costs 18% APR-equivalent, factoring loses unless you have growth-blocking liquidity. Factor when cash is the constraint, not when capital is just expensive.
Most contracts include a 1.5% per month late fee — the average B2B does NOT enforce. Enforcing late fees on a $50k invoice 30 days late = $750 extra. Real benefit: customers know you'll enforce, accelerates payment to net-30. Set up automated late-fee billing in your AR system.