Do you know your practice AR Days number? Are you tracking accounts receivable performance well? Studies show average AR Days should be under 40. Practices with high AR Days lose 10-15% revenue yearly. About 30% of claims remain unpaid after 90 days. Top performing practices keep AR Days below 30 always. Poor AR management costs practices $100,000 per year on average.
AR Days measures how long it takes to collect payments. This metric shows practice financial health clearly. Lower AR Days means faster payment collection occurs. High AR Days indicates billing and collection problems exist. Industry benchmarks help practices compare their performance levels. Tracking this metric improves cash flow and practice profits.
This guide shows how to calculate AR Days in medical billing. We explain the AR Days formula for medical billing step by step. Learn how to calculate accounts receivable days in healthcare easily. Discover what your AR Days number means for practice. Follow our AR Days calculation step-by-step process.
What Are AR Days
AR Days show the average time to collect payments. This metric tracks practice financial performance well.
Definition of AR Days
AR Days means Accounts Receivable Days total. Measures the average days to collect payment from claims. Shows how long money sits in accounts receivable. Lower numbers indicate faster payment collection always. Higher numbers show that collection problems exist currently.
Why AR Days Matter
High AR Days hurt practice cash flow badly. Slow collections delay paying practice bills on time. Staff salaries may be delayed due to poor collections. Equipment purchases get postponed without steady cash. Practice growth slows when cash flow is poor.
Industry Benchmarks
Top practices maintain AR Days below 30 always. Average practices have AR Days of 40-50 typically. Struggling practices often exceed 60 days AR Days often. Specialty affects the ideal AR Days targets somewhat. Surgery practices may have slightly higher numbers. Primary care should always stay below 35 days.
AR Days Formula Medical Billing
The AR Days formula is simple to use. Basic math provides this important metric quickly.
Basic AR Days Formula
AR Days equals total AR divided by average daily charges. Total AR is the total outstanding claims amount currently. Average daily charges equal total charges divided by days. Most practices always calculate monthly or quarterly. Use consistent time periods for accurate tracking.
Formula Components Explained
Total AR includes all unpaid claims currently. Add up all outstanding patient and insurance balances. Average daily charges are calculated from the total charges period. Divide total charges by the number of days measured. Use gross charges before any adjustments are made.
Step-by-Step Formula Breakdown
| Step | Action | Example |
| 1 | Find total AR | $500,000 |
| 2 | Calculate total charges | $600,000 |
| 3 | Divide by days in period | 90 days |
| 4 | Get average daily charges | $6,667 |
| 5 | Divide total AR by daily charges | 75 AR Days |
How to Calculate Accounts Receivable Days in Healthcare
Learn the exact steps to calculate AR Days. Follow this process monthly for best results.
Gather Required Data
Pull total accounts receivable from the billing system. Get this number from the aging reports, usually. Include both insurance and patient AR amounts. Pull total charges for the time period. Use the same period for AR and charges. Most practices use 30, 60, or 90 days. Ensure data is accurate before starting calculations.
Calculate Average Daily Charges
Take total charges for the time period. Divide by the number of days in the period. This gives the average daily charges number clearly. Example: $300,000 charges divided by 30 days. The result is $10,000 average daily charges total. Use gross charges, not net collections here. This number becomes the denominator in the AR Days formula.
Complete the AR Days Calculation
Divide total AR by average daily charges. Example: $400,000 AR divided by $10,000 daily. The result is 40 AR Days for practice. This shows the average collection time is 40 days. Compare to industry benchmarks for your specialty. Track monthly to see trends developing.
AR Days Calculation Step by Step
Follow this detailed process for accurate results. Step-by-step approach prevents calculation errors completely.
Step 1: Determine Total AR
Run the accounts receivable aging report from the system. Add all outstanding balances from the report. Include 0-30, 31-60, 61-90, and 90+ buckets. Total should match the general ledger AR balance. Verify accuracy before using this number. Update the report date for each calculation period.
Step 2: Find Total Charges
Pull charge reports from the billing system software. Sum all charges posted during the time period. Include all procedure codes and services billed. Use gross charges before any adjustments are applied. Do not use net charges or collections. Match the time period to the AR measurement exactly.
Step 3: Calculate Daily Average
Divide total charges by days in period. Use calendar days, not business days only. The 30-day period uses 30 as a divisor always. 90-day period uses 90 asa divisor exactly. The result shows the daily charge volume for practice. This becomes your denominator for AR Days.
Step 4: Compute Final AR Days
Divide total AR by average daily charges. Use a calculator or spreadsheet for accuracy always. Round to the nearest whole number, usually. The result shows your practice AR Days metric. Compare to previous months to see trends. Note if the number is improving or worsening.
Step 5: Analyze Results
Compare your AR Days to industry benchmarks. Look for trends over multiple months measured. Investigate the causes of any increases seen recently. Celebrate improvements in AR Days numbers achieved. Create action plans to reduce high numbers. Set goals for next month’s AR Days.
Improving Your AR Days
High AR Days need immediate attention and action. Several strategies help reduce this important metric.
Speed Up Claim Submission
Submit claims within 24 hours of service. Electronic claim submission results in faster payment. Batch claims daily instead of weekly only. Verify patient insurance before every appointment scheduled. Collect copays at the time of service always. Reduce claim errors through staff training regularly.
Follow Up on Outstanding Claims
Check the claim status weekly for all pending claims. Call insurance companies for claims over 30 days. Resubmit denied claims within 48 hours. Track reasons for denials and fix them. Appeal denied claims with proper documentation attached. Don’t let claims sit unpaid for over 60 days.
Improve Patient Collections
| Strategy | Impact | Timeline |
| Collect at service | Reduces AR 20-30% | Immediate |
| Payment plans | Increases collections 15% | 30 days |
| Online payments | Improves collections 25% | 60 days |
| Text reminders | Reduces AR 10-15% | 30 days |
Common AR Days Mistakes
Many practices calculate AR Days incorrectly sometimes. Avoid these common errors for accurate results.
Using Wrong Time Periods
Mixing different time periods for AR and charges. Using 30 days AR with 90 days charges. Results become meaningless when periods don’t match. Always use the same period for both numbers. Consistent methodology ensures accurate trend tracking. Check your calculation periods before computing.
Including Adjustments Incorrectly
Using net charges instead of gross charges. Subtracting contractual adjustments from total charges. This inflates AR Days artificially and incorrectly. Always use gross charges before any adjustments. The AR balance should include all outstanding amounts. Follow standard formula methodology for consistency.
Not Tracking Regularly
Calculating AR Days once per year only. Trends develop over time with monthly tracking. Annual calculations miss important performance changes occurring. Track AR Days monthly for best insights. Quarterly tracking is acceptable as the minimum frequency recommended.
Conclusion
Calculate AR Days in medical billing to track financial health. The AR Days formula for medical billing is simple to use. Learn how to calculate accounts receivable days in healthcare easily. Follow the AR Days calculation step by step for accuracy. Regular tracking shows collection performance trends over time. Low AR Days improve practice cash flow significantly. High AR Days indicate billing and collection problems.
FAQs
What is a good AR Days number?
Industry standard is 30-40 days for most practices. Top performers maintain AR Days below 30 always. Anything over 50 days needs immediate attention.
How often should I calculate AR Days?
Calculate AR Days monthly for the best results. Quarterly tracking is the minimum frequency recommended for practices. Weekly tracking helps during improvement initiatives being implemented.
What causes high AR Days?
Slow claim submission delays payment collection significantly. Poor follow-up on denied claims increases AR. Weak patient collection processes hurt AR Days.
Can AR Days be too low?
Yes, very low numbers may indicate calculation errors. AR Days under 20 seem unusual for practices. Could mean charges are not being recorded properly. Verify data accuracy if numbers seem too good.
How does AR Days affect cash flow?
High AR Days mean slow cash coming in. Practice bills still need paying on time. Creates cash flow problems and financial stress. Low AR Days ensure steady cash flow.
