Days in A/R Explained: How to Read and Improve It
Days in accounts receivable (A/R) is a simple measure of how quickly a practice turns billed services into cash. Used well, it is an early warning of problems in the revenue cycle.
How it is calculated
Divide total outstanding A/R by average daily charges. Average daily charges are total charges for a period, such as 90 days, divided by the number of days. Use the same method every month so trends are meaningful.
What a good number looks like
Many practices aim for roughly 30 to 40 days, but the right target depends on specialty and payer mix. A rising trend matters more than a single reading.
Read the aging buckets
Break A/R into 0-30, 31-60, 61-90, 91-120 and over 120 days. A healthy average can hide a growing tail of very old claims that are unlikely to be paid.
Why it rises
Common causes include slow charge entry, rejected claims that are not fixed, unworked denials, missing authorizations and payer delays. Patient balances can also lengthen the number if they are not followed up.
How to lower it
- Enter charges within a day or two of the visit
- Fix rejections the day they arrive
- Work denials on a schedule
- Assign every aged claim an owner and a next action
- Report the number monthly with the buckets
Worked example (illustrative numbers)
Suppose total A/R is $240,000 and charges over the last 90 days were $540,000. Average daily charges are $6,000, so days in A/R is 240,000 divided by 6,000, or 40. If A/R falls to $210,000 while charges stay the same, days in A/R falls to 35.
Frequently asked questions
Should I use charges or net revenue?
Either works if you use the same method every month. Charges are the most common basis.
Why look at aging as well?
The average can hide very old claims, while buckets show where collection is stuck.
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