Days in accounts receivable — sometimes called days in AR or days in receivables outstanding — tells you how long it takes your practice to collect payment after a service is delivered. It translates the dollar value of everything currently owed to your practice into a number of days.
Think of it as a clock that starts when you render a service and stops when you collect the money. The longer that clock runs, the more work is sitting unresolved in your revenue cycle. A low number means your practice is collecting quickly and efficiently. A high number means money is sitting out there longer than it should be — and the reasons why are worth finding.
If your days in AR is 42, it takes your practice an average of 42 days to collect on a claim from the date of service. The benchmark for a well-run outpatient practice is 25 to 35 days. At 42 days, something in the cycle is slowing things down.
Days in AR is calculated by dividing your total current accounts receivable by your average daily charge. Your average daily charge is your total gross charges for the past 12 months divided by 365.
You do not need to calculate this by hand. Your practice management system can generate this number. What matters is knowing what the number means and what to do when it moves in the wrong direction.
For an outpatient rehab therapy practice, the target range for days in AR is 25 to 35 days. Practices that consistently land in this range are collecting efficiently and working their accounts receivable without significant lag.
A number above 45 days is a signal that something in the revenue cycle needs attention. It does not tell you what — that is what the other metrics are for. But days in AR is often the first number that moves when a process breaks down, which is why it is one of the most-watched metrics in practice management.
Days in AR can increase for many different reasons. Some are front-end problems. Some are back-end problems. Some are both. Common causes include:
- Charge lag — a delay between when a service is rendered and when the charge is entered and the claim is submitted
- Claim denials — denied claims that sit unworked add to AR without generating any payment
- Slow insurance follow-up — claims that have not been followed up on age in AR, pulling the average up
- Front-end errors — incorrect insurance information, missing authorizations, and eligibility failures that cause claims to reject before they are ever adjudicated
- Payer-specific delays — some payers simply take longer to process and pay, which affects your overall average
- Patient balances not collected at time of service — outstanding patient responsibility that is never billed or followed up on adds to AR
A single month’s days in AR number tells you where you are. Three months of numbers tells you which direction you are heading. A practice at 38 days that was at 45 days three months ago is improving. A practice at 33 days that was at 27 days three months ago has a problem developing — even though the current number looks acceptable.
The goal is not just to know your number. It is to watch whether it is moving toward the benchmark or away from it, and to act before a trend becomes a crisis.