Are You Looking at Days in Accounts Receivable?

December 18, 2017 | Article

By Nicole Nail

As we discussed in our last article on monthly metrics, several metrics can alert you to issues within the revenue cycle. Combined, those metrics can tell you where to dig deeper and how to track the problem to resolution.

In this article, we are going to focus on days in accounts receivable (AR).

Monthly Metric 2
Days in AR is a metric that tells you how many days, on average, it is taking for payment to be received. It is usually calculated from the date charges are entered and can be with or without patient collection data. This metric is a good foundation of monthly reporting packages and easy to calculate. This metric is also important to review by an insurance company to see if there is a contract or claim delay issue.

The average days in accounts receivable can differ by specialty but the Medical Group Management Association states that 30 to 40 days is preferable. We recommend looking at this metric on a monthly basis and evaluated for trends over three, six and 12-month periods.

The calculation for days in AR is:

Days in AR     =   Accounts Receivable Total-Credit Balances

                                                          Total Charges/ Days (in time period)                            

Influential Factors
Days in AR can be influenced by several factors, such as payer mix, patient balance collection process, calculation based on business days in the month or calendar days in the month, and amount of credit balances.

In addition, there are certain payers (i.e., insurance companies) that are still not automated and take a significantly longer time to pay than others. If your practice has a high percentage of these type of payers, you may have higher days in AR.

Let’s review an example of how this number can vary based on just two of these influencing factors, using these numbers:

  • AR = $75,000
  • Gross Charges = $600,000 annually
  • Business Days (Average) = 240
  • Credit Balances = $5,000
  • Average Daily Charges= $1,643.84 for calendar days OR $2,500 for business days

In this example, the metric of days in AR could be from 28 days to 45 days:

  • If we use calendar days: 42.58 days in AR
  • If we use business days: 28 days in AR
  • If we don’t exclude credits: 45.83 days in AR OR 30.00 days in AR

None of those answers are wrong. It just depends on the way you want the metric to read and what you are comfortable with seeing. 

We encourage you to run this calculation in every way and make sure you are within the industry standard of 30 to 45 days in each method. The idea is to be consistent with the method that you will use and trend it over a long enough period of time that you can see on average how many days it is taking to get paid.

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