Days in Accounts Receivable
The first measure is the “days in accounts receivable” – the average number of days it takes to collect the payments due to the practice. To calculate days in AR,
- Compute the average daily charges for the past several months – add up the charges posted for the last six months and divide by the total number of days in those months.
- Divide the total accounts receivable by the average daily charges. The result is the Days in Accounts Receivable.
total charges for last 6mo / number of days in last 6mo = average daily charges
total AR / average daily charges = days in AR
For instance, if you have charged $280,000 in the past six months, and if there were 182 days in those months, your average daily revenue is $1,538. Then, if your total accounts receivable is $70,000, the Days in Accounts Receivable is 45.5. It is taking an average of 45.5 days to collect your payments.
$280,000 / 182 = $1,538
$70,000 / $1,538 = 45.5
So is that good? Well, Medicare usually pays about 14 days after receiving a claim. Some HMOs pay claims at 45 days after receipt, the time allowed by law in some states. We look at the following figures as benchmarks for medical billing and collections:
- 30 days or less for a High performing Medical Billing Department.
- 40-50 days for an Average performing Medical Billing Department.
- 60 days or more for a Below Average Medical Billing Department.
Measuring Medical Accounts Receivable: “Aging Buckets”
The other measure is the percent of accounts receivable in each “aging bucket”, for instance, 0-30 days, 31-60 days, 61-90 days, etc. To calculate it, you will need a report showing the dollar amount of the AR in each aging bucket. Simply convert each bucket to a percent of the total AR. The graph below shows the contrast between better-performing billing departments vs. Average-performing billing departments.
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