When receivables age, the usual response is to look at collections. Management adds a collector, tightens the dunning schedule, escalates the oldest accounts, or asks the sales team to call customers. Sometimes that works. Often it treats a symptom.

In equipment, rental, and field service businesses, a large share of slow-paying receivables never had a fair chance of being paid on time. The work order was incomplete, the price did not match the quote, the customer’s purchase order number was missing, or the invoice went out two weeks after the job closed. Collectors inherit those problems, but they cannot fix them. A buyer who reads days sales outstanding (DSO) as a finance metric, rather than an operating one, will misjudge both the risk and the opportunity.

The numbers are moving the wrong way

Receivables performance has been slipping broadly. PwC’s 2025 Working Capital Study of more than 17,000 listed companies found that global DSO rose from 47.3 days in 2015 to 50.0 days in 2024, with North American DSO up 5.5 percent over the same period. The Hackett Group’s 2025 survey of the 1,000 largest US nonfinancial public companies estimated $1.7 trillion of excess working capital, with receivables the largest piece at about $600 billion. It reported a second straight year of DSO deterioration and an 18-day gap between top and median performers.

Private and midsize companies feel the same pressure. In Atradius’s 2026 North America survey of more than 600 businesses in the United States, Canada, and Mexico, overdue invoices averaged 23 percent of B2B receivables, and late payment affected seven in ten companies. Customer liquidity was the leading cause.

That finding deserves weight. Some customers pay late because they are short of cash, and no amount of process discipline changes that. Hackett also tied the DSO decline to customer bargaining power, as large buyers pushed for longer terms. But the 2024 Atradius US survey named a different leading cause of late payment: administrative inefficiency in customers’ own payment processes. That phrase covers a lot, and some of it starts on the supplier’s side, with an invoice the customer cannot match, approve, or route.

Three kinds of past due

A more useful way to read an aging report is to sort past-due balances by cause rather than by age. In most service businesses they fall into three groups.

Category What it looks like Who can fix it
Cannot pay Customer is short of cash or in distress Credit and collections
Will not pay yet Customer disputes price, scope, quality, or quantity Operations, sales, and billing
Has not been properly asked Invoice is late, wrong, or missing required information Operations and billing

Only the first group is a true credit problem. The second and third are operating problems that surface in finance. In field service, they usually trace to a short list of failures.

  • Incomplete work orders. The technician closes a job without notes, hours, parts, or a signature, and billing waits for the missing pieces.
  • Price and quote mismatches. The invoice uses list price when the customer has a negotiated rate, or the sales rep promised terms the system does not know about.
  • Missing purchase order or approval data. Many industrial customers route invoices through payables systems that reject anything without a valid PO number, site code, or approver.
  • Proof-of-service gaps. The customer asks for evidence that the work was done, and the company cannot produce it quickly.
  • Rental billing disputes. In equipment rental, off-rent dates, damage charges, and fuel or cleaning fees are common points of disagreement, especially when check-out and return inspections are not documented with photos.
  • Quality and repeat visits. A customer who paid for a repair that did not hold is slow to pay the next invoice, and sometimes deducts from it.

Each failure adds days. None of them is visible in a DSO trend line.

Where the cost hides

The obvious cost of slow receivables is cash. In a hypothetical $60 million service business, each day of DSO ties up about $164,000. Ten days is about $1.6 million, which matters a great deal to a company carrying acquisition debt.

The less obvious costs are often larger. Disputes are expensive to resolve. A 2018 IOFM and Esker white paper, citing Credit Research Foundation data, reported a median deduction cycle of 105 days and a cost of $200 to $300 to research and resolve a single unauthorized deduction. The same paper found that 35 percent of receivables professionals named deduction resolution time as a top barrier to improving DSO.

Credits and write-offs also tend to escape scrutiny. McKinsey’s 2022 work on order-to-cash described an industrial manufacturer whose reported bad debt was 0.1 percent of sales. Including credit memos, the figure was closer to 0.4 percent. Leakage across its order-to-cash process reached 3 to 5 percent of EBITDA, and much of it was invisible to the collections team. The causes were operational: inaccurate pricing data, frequent price changes that customers could not track, and functions working in silos without a single owner.

That pattern matters to investors because credit memos reduce revenue after the fact. A business that issues credits to settle disputes is recognizing revenue it will not fully collect. If the credits land in a later period, or are booked as bad debt rather than as price concessions, the trailing earnings a buyer pays for may be overstated.

What to test in diligence

DSO alone tells a buyer very little. A business with 55-day DSO and clean billing is a different asset from one with 55-day DSO driven by a growing pile of disputed invoices. The work is to break the number apart.

Diagnostic Why it matters
Days from job completion to invoice Billing lag adds days before DSO starts counting
Share of past due under active dispute, by reason code Separates credit risk from operating failure
Credit memos as a percent of revenue, by reason and branch Shows where revenue is being given back
Invoice first-pass acceptance at major customers Measures how often invoices clear payables without rework
Work orders still open after the job is complete Reveals revenue earned but not yet billed
Repeat visits within 30 days on billed jobs Links quality problems to payment behavior

The first item deserves special attention. DSO is usually measured from the invoice date, so the days between finishing a job and issuing the invoice do not appear in it. A company can report reasonable DSO while its cycle from completed work to collected cash runs weeks longer. Measuring completion to cash closes that gap.

Two questions for management are also revealing. Ask who owns a disputed invoice and how long it takes to resolve one. Then ask whether dispute reasons are coded and reviewed by operations. A company that routes every dispute to a collector, without feeding the cause back to the branch or the pricing team, will keep producing the same disputes.

The working capital target in a purchase agreement raises the stakes. That target is usually set from trailing average working capital. If receivables include a growing share of disputed or doubtful balances, the target may rest on amounts that will later be credited or written off, and the buyer absorbs the difference after close. Testing the aging by cause, rather than only by age bucket, protects the price.

Where the company does not code its disputes, a sample works. Pulling the 50 largest past-due invoices and tracing each back to its work order, quote, and customer correspondence usually shows the pattern within a few days.

What it means after close

The fixes are usually plain and inexpensive relative to the cash they release. Require complete work orders before a job can close. Capture signatures and photos in the field. Load contract pricing into the billing system and limit manual price overrides. Store each customer’s PO and invoicing requirements at the account level. Set a target for job-to-invoice lag and report it by branch every week.

Most important, give one person ownership of the full cycle from completed work to collected cash. McKinsey found that a single process owner could nearly double the gains of efforts run function by function. In a lower middle market company, that owner may simply be the controller, given authority over field paperwork and a weekly review with branch managers.

There are trade-offs. Tighter controls slow some jobs at first. Technicians resist extra steps, and sales teams resist losing pricing discretion. Those costs are real and should be managed rather than dismissed. They are also small next to the cost of financing receivables that were never billed correctly.

Collections teams can only collect what operations hands them. When receivables age, the first place to look is the work order.

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