Knowing how to calculate Days in Accounts Receivable grants actionable insight into billing efficiency
Your Average Days in Accounts Receivable or “Days in A/R” is the average time that it takes for a service to be paid by a responsible party. This metric can describe either the insurance payments or patient payments. The reason practices should know how to calculate days in A/R is so they can quantify the efficiency of their billing operation.
When calculated correctly, the Days in A/R formula yields a number that signifies a value for days. Use the following metrics as guideposts:
- A/R Less than 35 – Good
- A/R 35 to 50 – Average
- A/R Greater than 50 – Poor
Note that specialty and payer mix can impact these numbers.
Calculating Days in A/R
First, you’ll need to calculate your practice’s average daily charges:
- Add all of the charges posted for a given period: 3 months, 6 months, 12 months
- Subtract all credits received from the total number of charges
- Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.)
Next, calculate the days in accounts receivable by dividing the total receivables by the average daily charges.
Sample Calculation
In the sample calculation below use these values for your variables. Receivables of $70,000, Credit Balance of $5,000, and Gross Charges of $600,000
(Total Receivables – Credit Balance)/Average Daily Gross Charge Amount (Gross charges/365 days)
[$70,000 – $5,000] / ($600,000/365 days)
$65,000/1644 = 39.54 days in A/R
It’s a simple calculation but the insights are valuable.
3 pro tips for calculating your average days in accounts receivable
Learn how to calculate days in A/R like the pros using these 3 tips.
- Calculate days in accounts receivable all payers individually
- Understand your percentage of A/R over 90 and 120 days
- Remember to incorporate collections account amounts in your formula
Each concept is broken down under its own heading below.
Make sure you know your days in accounts receivable for all payers individually
It is essential to know both your average days in accounts receivable across all payers as well as broken down for specific payers. By identifying payers with a higher than average days in A/R, you may be able to spot some inefficiencies in your billing process for that payer and take steps to reduce the amount of time that it takes to get paid.
Old aging buckets- percentage of A/R over 90 and 120 days
Monitoring the percentage of A/R that has aged beyond 90 and 120 days is an important factor in measuring the capability of your practice to get paid in a timely manner. This percentage indicates the percentage of receivables that are older than 90 and 120 days of the total current receivables. The actual age of the medical claim should be used as a base for your calculations (e.g. date of service) to achieve an accurate number and get a holistic view of your medical billing.
Accounts sent to collections
Often times, accounts which are sent to collections are written off from the receivable records. This would create an incorrect impression since these monies are not being accounted for. Sending a large number of accounts to collections will make the days in A/R days look better. Avoid confusion by calculating and comparing your days in A/R with and without the accounts sent to collections.