Data to Dollars: What Each Metric Means & How to Use It to Drive More Profits: Series #4 - Accounts Receivable Turnover (ART)
When I first started working with builders on their financials, I’d walk into our meetings armed with accurate data, detailed reports, and carefully tracked metrics. I was confident and excited to share what I’d uncovered, knowing these numbers could transform their business.
But there was a problem: I might as well have been speaking another language. It became very clear very quickly that my clients didn’t just struggle to understand the reports—they didn’t know what the metrics meant, let alone what actions to take, if any.
By the time I explained the significance of the metric, I’d already lost their focus. And the worst part? We never got to the best part—the actionable insights that could actually drive their dollars to meet their goals!
Enter: The Data to Dollars Series and The Playbook for Builder Profitability! In this series, we’ve broken down the key metrics residential construction companies need to track, what they mean for your business, and—most importantly—what to do with them to drive profitability and growth. We’re currently taking every metric covered in the series and packaging them altogether into one Playbook especially for Builders. Armed with this Playbook, you’ll know exactly what to do when with what you find in your financial reports.
Let’s dive into this week’s metric and see how it can help you turn some data into dollars.
#4 - Accounts Receivable Turnover (ART)
What It Is -
Accounts Receivable Turnover (ART) measures how quickly your business collects payments for work completed.
In other words, ART measures how quickly your homeowner (or homeowner’s bank) or investor pays your construction draw request or pay application request.
How we calculate it -
ART = Net Credit Sales ÷ Average Accounts Receivable
For example, if your business billed $1,000,000 over a year and your average accounts receivable balance was $200,000:
ART = $1,000,000 ÷ $200,000 = 5
This means you’re collecting payments five times per year, or roughly every 2.4 months.
Why We Track It -
Timely collections are critical for maintaining healthy cash flow. Even if your business is profitable, slow or irregular billing creates a cash flow bottleneck, making it harder to pay subcontractors, vendors, and overhead expenses.
Residential construction companies often struggle with delayed billing cycles, leaving substantial draw requests sitting on the table for extended periods of time. These delays can snowball into cash flow stress that disrupts projects and strains vendor relationships.
This also helps us project cash flow for the future, which then helps us to identify ideal times for investments or expenditures. It also helps project our ability to pay current liabilities (such as credit card payments if you utilize those to save with rewards, etc.) and ability to take advantage of vendor’s early pay discounts.
Why You Need to Know It -
A high ART signals an efficient, steady stream of incoming cash being collected, while a low ART is a red flag that payments are coming in few and far between. Tracking ART ensures you’re staying on top of cash flow and addressing billing inefficiencies.
Good: A higher ART (6 or more) means you’re collecting payments efficiently and keeping cash flow moving.
Bad: A lower ART (less than 4) indicates delays in getting your billing out to homeowners/investors/homeowner banks, or slow client payments, creating financial stress and potential project delays.
Action Steps Based on ART -
If Your ART Is Strong (6+):
Keep up the good work with consistent, timely billing cycles.
Your office staff is doing an amazing job getting their draw request packages out consistently and timely. Praise them!
If Your ART Is Low (<4):
Prioritize Timely Billing: Bill clients, homeowners, or investors promptly at project milestones or agreed intervals. The longer you delay, the more you stretch cash flow.
Streamline Draw Requests: Use project management and accounting tools to ensure draw requests are prepared and sent regularly.
Follow Up Quickly: Don’t let outstanding pay apps linger. Implement a process for following up on overdue payments. Also, setting the due date for days instead of weeks or months will help communicate the need for homeowners to be timely with payments.
If ART Varies Wildly Between Projects:
Evaluate Project Managers: Ensure project managers are tracking progress and submitting pay apps on time.
Evaluate Office Financial Ops Coordinator: Examine what is causing the delay in releasing timely draw request packages. It could be clunky processes, inaccurate data entry, or even poor communication from the field.
Implement Clear Systems: Set clear billing schedules and align all stakeholders on payment timelines.
Communicate with Clients: Proactively communicate with clients to avoid surprises or payment delays.
Conclusion
Accounts Receivable Turnover (ART) isn’t just a number—it’s a reflection of your cash flow health and your team’s ability to maintain consistent billing practices. By tracking this metric and taking action, you’ll not only reduce financial stress but also free up cash to reinvest in your business.
At Catalyst Construction Accounting & Consulting (Catalyst CAC), we specialize in helping residential construction businesses just like yours track and understand key metrics like GPM and more. Whether you need help with construction bookkeeping (data accuracy, essential construction financials), construction controllership (holistic oversight over construction financial processes & strategic financial guidance), or a construction CFO advisor (forward-looking, strategic, big-picture financial guidance), we’ll work with you to eliminate financial chaos and give you the tools to drive profitability and growth.
Let us help you turn your data into dollars. Contact us today to learn how we can become your valued partner in building a stronger, more profitable business.
What’s Next -
Stay tuned for the next episode in the Data to Dollars Series as we uncover yet another cash flow metric to help you operate smoothly while driving profitability to scale your business!
