Billings and Collections: Optimizing Cash Flow from Sales
Revenue on the P&L doesn't pay bills. Cash does. Understanding the gap between revenue recognition and cash collection is critical for growing companies.
Growing companies often face a paradox: strong revenue growth can actually reduce cash if collections lag. Every day between billing and collection is a day your cash is working for someone else. Understanding this distinction between ARR, bookings, and revenue is essential to revenue operations.
The Cash Gap
A company with $10M ARR and 60 DSO has ~$1.6M tied up in receivables. Reducing DSO to 45 days frees up $400K. That's real money that could fund growth.
Billings vs. Revenue
Billings is when you invoice. Revenue is when you recognize (per accounting rules). Cash is when you collect. All three can differ significantly.
Billing Models
Annual Upfront
Bill entire year at contract start. Best cash flow, but requires customer willingness. Often incentivized with discount (10-15% off monthly).
Quarterly in Advance
Bill 3 months at start of each quarter. Middle ground between cash flow and customer flexibility.
Monthly in Advance
Bill each month at the start. Most flexible for customers, worst for your cash flow. Common for SMB/self-serve.
Monthly in Arrears
Bill after service delivered. Worst cash flow scenario. Sometimes required for usage-based pricing.
DSO Management
Days Sales Outstanding (DSO) measures how long it takes to collect after invoicing.
DSO = (Accounts Receivable ÷ Revenue) × Days in Period
DSO Benchmarks
| Business Type | Typical DSO | Best-in-Class |
|---|---|---|
| SaaS (SMB focus) | 30-45 days | <20 days (credit card) |
| SaaS (Enterprise) | 45-60 days | 30-40 days |
| Professional Services | 50-70 days | 40-50 days |
DSO Warning Signs
Rising DSO often indicates problems: customer dissatisfaction, billing errors, or weakening customer credit. Monitor DSO trends monthly, not just absolute numbers. This directly impacts your sales forecasting accuracy.
Collection Strategies
Improving Cash Collection
Collection Escalation Process
| Days Past Due | Action |
|---|---|
| Due date | Automated payment reminder |
| 7 days | Follow-up email with statement |
| 15 days | Phone call from AR |
| 30 days | Involve account manager/sales |
| 45+ days | Executive escalation, payment plan discussion |
Need Help With Cash Flow?
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