High A/R Balances in HVAC/Plumbing?

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May 31, 2021

by a searcher from University of Toronto - Joseph L. Rotman School of Management in Vancouver, BC, Canada

Looking at a Plumbing/HVAC contractor that has a large & stable A/R balance with > 90 days outstanding. Is this what others have seen in the industry? Any suggestions to free up capital - tighten A/R, stretch out A/P etc.

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Reply by a searcher
from Hillsdale College in New York, NY, USA
How much of it is bad accounting? If they have contracts that they bill the full thing in advance and get paid in installments, it will look like long-dated A/R but might be right on time. There are a number of ways this can get really tricky, so I'd get them to talk through the entire billing cycle with you rather than trusting the balance sheet to tell you the answer.
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Reply by a searcher
from University of Glasgow in Glasgow, UK
Have looked at HVAC, fairly typical. 90 days is usually the max a funder will cover, there could be retentions as part of the A/R which would skew the debtor days. I agree with Jack Rong, depends if their is a mix of consumer/commercial work. Their should be no credit terms for consumers, and look to tighten up the terms on commercial work.
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