Last updated: December 2025
The construction industry has the longest payment cycles of any sector. UK construction companies wait an average of 83 days to get paid—compared to 65 days across all industries. That's nearly three months of cash trapped in unpaid invoices.
For subcontractors, it's even worse: only 5% get paid on time. Most wait 90+ days, and when an invoice goes unpaid for 90 days, you'll only recover 70p on the pound.
This guide covers 10 practical strategies to reduce your Days Sales Outstanding (DSO) and improve cash flow—specifically for UK construction businesses.
How much cash is stuck in your receivables? Use our free AR Health Calculator to find out.
Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment after invoicing. The formula is simple:
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days
A high DSO means your money is locked in receivables instead of working for your business. Your aged debtor report shows exactly where it's stuck. This limits your ability to:
Even small improvements matter. One construction company freed up £1.37 million in working capital by reducing DSO by just 10 days.
[EMBED TABLE 2 HERE - DSO Benchmarks]
If your DSO is above 70 days, you're leaving significant cash on the table. The strategies below can help you move toward the 45-60 day range that top-performing construction firms achieve.
Before implementing these strategies, establish your baseline. An accounts receivable aging report breaks down your receivables by how long they've been outstanding:
For construction companies: Make sure your aging report separates retentions from standard overdue invoices—otherwise your numbers will look artificially bad. Learn how in our complete AR aging report guide.
Before fixing the problem, it helps to understand why construction payment cycles are so long:
Progress billing, stage payments, and retentions create multiple approval layers. Each payment requires sign-off from site managers, quantity surveyors, and finance teams.
Construction billing remains a "paper-heavy nightmare." Required documentation—invoices, delivery notes, compliance certificates, insurance documents—creates opportunities for delays and disputes. Research shows that billing errors are the #1 reason payments get rejected.
Standard practice holds back 5-10% of each payment until project completion (or 12 months after). This retention money can represent a significant portion of your receivables.
Unlike retail or services, construction projects span months or years. The distance from work completion to final payment is inherently longer.
Money flows from client → main contractor → subcontractors → suppliers. Delays at any point cascade down the chain.
The clock on your DSO starts when you invoice, not when you complete the work. Yet many construction firms wait days or weeks to send invoices after stage completion.
Action steps:
Impact: Companies that invoice within 24 hours collect payment 10-15 days faster on average.
Paper invoices get lost, delayed in internal mail, and sit on desks. Electronic invoices arrive instantly and can be tracked.
Action steps:
Impact: Electronic invoicing reduces average payment time by 7-12 days.
The easier you make it to pay, the faster you'll get paid. Many construction firms still only accept BACS transfers, adding unnecessary friction.
Payment options to offer:
Impact: Companies offering 3+ payment methods see 20% faster payment on average.
Modern AR software can predict which invoices are likely to pay late before they're overdue. This lets you intervene early with high-risk accounts.
How it works:
Impact: Predictive AR platforms reduce DSO by 25-35% by catching problems before they occur. See how Wulfjoy used AI prediction to improve their collections.
Many construction firms extend credit without checking whether clients can actually pay. This creates DSO problems from day one.
Action steps:
Impact: Proper credit management prevents bad debt and reduces average DSO by 10-15 days.
Ambiguous payment terms lead to disputes and delays. Your contracts should specify exactly when and how you'll be paid.
Terms to include:
Manual follow-up is inconsistent and time-consuming. Review your accounts receivable aging report weekly to prioritise which invoices need attention. Automated reminders ensure every invoice gets appropriate follow-up.
Recommended reminder sequence:
Impact: Companies that automate reminders collect payment 90% of the time before needing legal action.
Poor progress billing is a major DSO killer. Disputes over completed work percentage can delay payments for weeks.
Best practices:
Retentions often get "forgotten" after project completion. Set up systems to track and claim retention releases.
Action steps:
When invoices hit 60+ days overdue, you need a clear escalation path. Hesitation costs money.
Escalation timeline:
The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses powerful tools to recover late payments:
You can charge 8% above Bank of England base rate on late commercial debts. As of December 2025, that's approximately 13% annual interest.
You can also claim fixed compensation for recovery costs:
Tip: Include these rights in your payment terms. Even if you don't charge interest, the threat often accelerates payment.
While you can implement many strategies manually, the right software makes DSO reduction faster and more consistent.
Xero, QuickBooks, and Sage provide basic invoicing and payment tracking. Essential foundation, but limited collection automation.
Equisettle adds AI-powered payment prediction and automated collections on top of your accounting software. Purpose-built for UK businesses with complex AR needs like construction. Integrates with Xero, QuickBooks, and FreeAgent. Compare your options in our guide to the best AR software for UK businesses.
Tools like Buildxact, Procore, and NextMinute help with project invoicing but typically lack dedicated collections features. Pair with AR automation for best results.
The industry average is 83 days, but top performers achieve 45-60 days. If your DSO is above 70 days, there's significant room for improvement. Use our AR Health Calculator to benchmark your performance.
Most construction companies see 10-20% DSO reduction within 60-90 days of implementing automated collections. The fastest wins come from invoicing faster and automating reminders.
Professional, consistent follow-up actually improves relationships. Clients respect businesses that have clear processes. The key is being polite, predictable, and persistent.
You're legally entitled to charge 8% + base rate. Many businesses include this in terms but waive it for prompt payment. Even without charging, referencing statutory rights in reminders accelerates payment.
Construction DSO is high because the industry has complex payment structures and relies on outdated processes. But that's exactly why improvements here have outsized impact.
Start with these three quick wins:
These three changes alone can reduce DSO by 15-25 days. For bigger improvements, add AI payment prediction and proper credit management.
Monitor progress with a weekly aged debtor report to see your DSO improving in real-time.
Equisettle helps UK construction companies predict late payments, automate collections, and reduce DSO—without damaging client relationships.
See how Wulfjoy improved their cash flow, then try it yourself:
Integrates with Xero, QuickBooks, FreeAgent, and GoCardless. No credit card required.
Calculate your potential savings →
