What is Your Accounts Receivable
Your Accounts Receivable (AR) is the amount of billed services owed to your practice by all payer sources. The AR accounts includes cash from insurers, patients, and other guarantors. It tracks how much cash you can expect to see flow in assuming payers pay on time. Keeping your cash flow positive is important for obvious cash management reasons, and also allows you to focus on the most important parts of your practice.
Why to Monitor AR
AR reports provide indispensable insight into your cash management. An AR report covers one time and tells you how quickly your invoices are being paid, if you are having issues with a percentage of unpaid, and can raise red flags in moments when cash is tight. Monitoring AR reports over time expose trends in your practice, help identify cycles, and allow you to project your future cash flow. Breaking down an AR report can show you who (not why) is delaying or not paying your invoices and provide data for practice benchmarks. There are two critical angles to look at your AR. First, is days is AR. Second, is the bucket method of reporting.
2 Ways to View Your AR
1. Days in AR
Days in AR is a good average to use as a benchmark within a current period and on an ongoing basis. The formula for Days in AR is
Total AR ÷ Average Daily Charges = Days in AR
Total AR – This can be obtained by looking at all open invoices
Average Daily Charges = Total Charges (over a period of time) ÷ Days in chosen period of time
Here’s a quick example. Your practice has issues invoices to the amount of $600,000 in the last 6 months. There are 182 days in the 6-month period. Your total Accounts Receivable is $150,000.
Average Daily Charges = $600,000 ÷ 182 days = $3,296
Days in AR = $150,000 ÷ $3,296 = 45.5
45.5 Days in AR
This tells you that from the time you invoice a payer, your average expected payback period is 45.5 days.
2. Bucket Method
The Bucket Method is a way to analyze your AR as a function of time. You can analyze the dollars or the percentage of receivables in each bucket. The buckets are usually 0-30 days, 31-60 days, 61-90 days, and 91+ days. Often a 120 day bucket is added before clumping the rest. Receivables that get too old may become uncollectable and may be categorized as bad debt. Tracking your buckets helps you avoid allowing claims to become uncollectable. Here’s an example of an AR Buckets Report, displaying the percentage of open invoices in their bucket.
These two AR reports are not just good numbers to be aware of, they are tools to help you manage you practice. To read more about how to use these tools to manage your practice.