Insights: Article

Are You Looking at Days in Accounts Receivable?

By Nicole Munsterman

December 18, 2017

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.

Latest Insights

November 16, 2018
Video
If your business sells or operates in more than one state, it’s important to understand the concept of nexus. Depending on how you’re earning revenue, having nexus could impose a variety of taxes, which vary state to state. Learn more in our…
November 15, 2018
Article
Until recently, many businesses weren’t overly concerned about sales tax. They knew they needed to collect and remit in the state in which they resided, but beyond that, their compliance burden was limited.
November 12, 2018
Article
This insight explores what dealerships can expect from the proposed section 199A regulations under tax reform.
November 8, 2018
Article
Are you a business taxpayer with annual gross receipts of $25 Million or less? If so, you may be eligible to take advantage of new Small Taxpayer Safe Harbors that could generate significant tax savings and simplify your tax returns in future years!
November 8, 2018
Article
Considered the most significant tax code overhaul in over three decades, the Tax Cuts and Jobs Act passed in 2017 includes provisions affecting both individuals and businesses.
November 7, 2018
Recorded Webinar
State and local sales tax compliance is always evolving, making it important to stay up-to-date on changes affecting your tax liability and responsibilities. This session will cover what you need to know regarding the recently enacted state and…
November 7, 2018
Article
“Why is my portfolio underperforming the market?” This question may be on your mind.
November 5, 2018
Article
Identify your implementation methodology. There are four practical expedients available. We'll explore each option.
November 5, 2018
Article
Deeper dive into ASU 2016 liquidity.