Days in AR: what good actually looks like

The formula, and what it hides

Days in AR is total accounts receivable divided by average daily charges. If you are carrying $300,000 in AR and billing $10,000 a day, you are at 30 days.

The number everyone quotes as healthy is 30 to 40. It is not wrong, but a single average conceals the thing that actually costs you money: a practice at 35 days with nothing over 90 is in a completely different position from a practice at 35 days carrying a third of its balance past 120.

Measure the tail, not the average

The number worth watching is the percentage of AR over 90 days. Under 15% is strong. Over 25% means somebody stopped working the aged end, and the average will not tell you that until it has been true for months.

Track it by payer as well. One payer sitting at 40% over 90 while everything else is clean is a specific, fixable problem — usually a coordination of benefits issue or an enrolment lapse rather than anything to do with effort.

Why the average lies during growth

Average daily charges is the denominator. A practice that has just added a provider sees charges rise immediately while the new collections lag by 45 days. Days in AR gets worse on paper during exactly the period the practice is doing well.

That catches people out. If the metric moves after a staffing or volume change, check whether the denominator moved before concluding anything about collections.

What to put on the report

Days in AR, the percentage over 90, and the percentage over 120 — split by payer. Three numbers and a split. Anything less hides the problem; anything more stops being read.