Days in AR: how to calculate it, and the number it hides

Four divisions, and almost nobody does them

Days in AR, the over-90 share, net collection rate and gross collection rate are the figures every outside party asks a practice for. Most independent practices cannot produce them on the day they are asked — not because the arithmetic is hard, but because the definitions are slippery enough that nobody is confident they have done it right. Contractual adjustments get confused with write-offs, payments get counted on the date posted rather than the date banked, and the period is whatever the report defaulted to. So the figure never gets produced and the practice runs on a feeling about whether collections are alright.

The formulas

Days in AR is the total accounts receivable balance divided by average daily charges, where average daily charges is gross charges for a period divided by the number of days in it. A year smooths seasonality; a quarter is more responsive if you are testing whether a change worked.

Net collection rate is payments divided by charges minus contractual adjustments — of the money you could ever have collected after the contractual write-down, how much you actually got.

Gross collection rate is payments divided by gross charges. It mostly measures your fee schedule against your contracted rates rather than your billing, and a low gross rate alongside a high net rate means your charges are set high, which is not a problem.

The one that matters most gets looked at least

AR over 90 days as a share of total AR. It is where timely filing limits and appeal windows run out, and a balance that crosses those stops being slow and starts being gone. Days in AR can rise for two completely different reasons — claims going out late, or claims going out fine and nobody following them up — and the over-90 share is what tells you which one you have.

Why we do not print a benchmark

"Under 35 days is good" is repeated everywhere in this industry. We hold no sourced figure for it, so we do not print one: quoting a number because everybody quotes it is inventing a standard for somebody to be judged against. The comparison that means something is your own figure last quarter, and the direction it moved.

Reproduce it next month without us

Our free calculator prints the formula beside every answer, which is the entire design. A number you cannot reproduce is a number you cannot act on, and the month-on-month movement is worth more than any single reading.