Key Takeaways
- Net 30 is a trap: The industry default of 30-day payment terms was never designed for small contractors. Switching to Net 10 or payment-on-completion can dramatically improve cash flow without losing customers.
- Know your real cost of waiting: Every day you wait for payment costs money. Carrying $100,000 in receivables for 60 days costs $1,600+ in interest alone, and thousands more when you factor in opportunity cost.
- Fire your worst customers: High-volume accounts that pay slowly often become liabilities, not assets. Customer concentration above 20% of revenue creates dangerous dependency.
- Talk about money on day one: Contractors who set clear payment expectations upfront report fewer collections issues and faster payment cycles than those who avoid the conversation.
That property management company calling you three times a week? The one with 40 units that keeps your schedule full? They might be slowly killing your business.
Here’s what nobody tells you when you’re chasing volume: revenue isn’t the same as cash. And in this business, cash is oxygen. You can be profitable on paper while drowning in reality.
The Math That Should Keep You Up at Night
Industry data shows that average Days Sales Outstanding (DSO) for HVAC contractors runs between 45 and 90 days for commercial work.¹ That means the average commercial contractor waits 2-3 months to get paid for work they completed, parts they purchased, and labor they already covered.
(Residential contractors typically collect payment at completion, so these numbers may not apply directly to you. But if you’re doing any commercial service, property management work, or builder relationships with delayed billing, pay attention.)
Run some quick numbers. If you’re billing $50,000 a month and waiting 60 days for payment on average, you’re carrying $100,000 in receivables at any given time. That’s $100,000 of YOUR money sitting in someone else’s pocket.
What’s that costing you?
- Financing costs: If you’re using a line of credit to cover the gap, you’re paying 9-10% annually at current rates
- Opportunity cost: That money could be earning 5% in a basic money market account
- Growth limitations: You can’t take on new work or hire because you’re waiting on money you already earned
A rough calculation? Carrying $100,000 in receivables for 60 days costs you roughly $1,600 in interest on a standard line of credit. Add in opportunity cost and the cumulative effect of maintaining that float year-round, and you’re looking at $2,500-3,500 annually. If you’re using invoice factoring to get faster cash (fees run 1.5-3% per month), that number jumps to $3,000-6,000. Now multiply that by the years you’ve been operating this way.
What’s Slow Payment Costing You?
The problem compounds when you realize most HVAC contractors operate on thin margins to begin with. Industry benchmarks show the average contractor nets just 2.5-5%, while successful companies target 12% net profit.² If you’re running at industry average margins and financing your customers’ slow payments, there’s almost nothing left.
If you’re thinking about starting your own HVAC business, understand this reality before you jump. Cash flow management isn’t a nice-to-have. It’s survival.
🎙️ Related Podcast Episode: Evolution of an HVAC Business Ep. 4: Cash Flow – Gary breaks down the fundamentals of tracking income and expenses for new HVAC business owners. (12 min)
The Payment Terms You Never Thought to Change
Net 30 became the default because large corporations needed 30 days to process payments through their bureaucracies. But you’re not General Electric. You’re a contractor who needs to make payroll on Friday.
What happens when you switch to Net 10?
Contractors who have made this change report that customers actually pay faster. Not because they suddenly found extra cash, but because the shorter deadline creates urgency. When an invoice says Net 30, it goes in a pile. When it says Net 10, it gets attention.
The fear is always the same: “I’ll lose the customer.” But think about that for a second. If a customer leaves because you asked them to pay within 10 days instead of 30, what does that tell you about how they value your work?
Research on customer retention supports this: customers acquired on price are the most likely to leave when anything changes.³ Good customers pay. Problem customers negotiate, delay, and eventually move on to the next contractor willing to finance their operations.
📺 Related YouTube Video: The Lead Vetting System for HVAC Pros to Boost Visibility & Avoid Bad Customers. Nick Fergis discusses how to filter out problematic customers before they become your problem.
The Customer Concentration Trap: When Volume Becomes a Liability
Let’s say a large customer offers you volume. Lots of calls, consistent work, predictable revenue. Sounds perfect. So you orient your business around serving them. You adjust your scheduling, maybe hire staff specifically for their account, turn down other work because you’re too busy with their calls.
Then one of two things happens. Either they leave (and take 30-40% of your revenue with them), or they start paying slower because they know you need them more than they need you.
The U.S. Small Business Administration and business risk management guidance consistently recommend that no single customer should represent more than 20% of your revenue.⁴ When you cross that threshold, you’ve stopped running a business and started working for that customer.
This is especially dangerous in commercial service, where property managers and facility accounts can easily become 25-40% of your revenue if you’re not careful. Residential contractors face less concentration risk since individual homeowners rarely become repeat customers at that scale, but the same principle applies if you’re heavily dependent on one referral source or builder relationship.
📺 Related Podcast: What HVAC Technicians Must Know about Money before Starting a Business with Greg Crumpton. Greg shares invaluable advice for technicians considering the leap into business ownership.
The contractors who navigate this well do a few things differently:
- Diversify deliberately: Even when a big account wants more work, they cap the relationship and seek other customers
- Enforce terms uniformly: The big customer pays on the same terms as everyone else
- Know their walkaway number: They’ve calculated exactly what they’d lose by firing the customer, and they have a plan if it happens
This connects directly to creating fair value exchanges in your business. If a customer relationship isn’t fair to both parties, it’s not sustainable.
A Collections Process That Actually Works
The contractors who rarely have collections problems share one trait: they talk about money before they do the work.
Setting expectations on day one isn’t aggressive. It’s professional. Here’s what that sounds like:
“Our payment terms are Net 10. We accept credit card, check, or ACH transfer. For service work over $500, we require payment at completion. For larger projects, we bill progress payments at 50% and completion.”
Said clearly and confidently at the start of the relationship, this prevents 90% of payment issues.
For the 10% that slip through, have a documented escalation process:
- Day 1 past due: Friendly reminder email or text
- Day 11 past due: Phone call from office manager
- Day 21 past due: Owner phone call with payment plan discussion
- Day 31 past due: Service hold notification (no additional work until balance resolved)
- Day 45+ past due: Collections or legal action
The key is consistency. Every customer, every time. No exceptions for the “good ones” who’ve been with you for years. Those exceptions are how $100,000 receivables balances happen.
The Bottom Line
Cash flow problems kill more HVAC businesses than bad technical work ever will. The contractor who does excellent work but waits 90 days for payment is more vulnerable than the average contractor who gets paid on completion.
If you’re already running a business, audit your receivables this week. Calculate your real DSO. Look at your customer concentration. And ask yourself: are your payment terms serving your business, or someone else’s?
Your best customers pay promptly. Your worst customers always have a reason to wait. Choose accordingly.
Sources
- “Annual Financial Survey of the Construction Industry,” Construction Financial Management Association (CFMA), 2024.
- “Your Guide to HVAC Business Profit Margins,” Jobber Academy, 2024.
- “Boost HVAC Success: Top Customer Retention Strategies for 2025,” Mar-Hy Distributors, 2025.
- “Customer Concentration Risk Guidelines,” U.S. Small Business Administration (SBA), 2024.
