What Are AR Days? A Guide to Getting Paid Faster
Every number in your practice tells a story. Your patient volume tells a story about community trust, while your overhead costs tell a story about operational efficiency. But few numbers tell a more crucial story than your Accounts Receivable Days. This metric reveals how effectively your revenue cycle is working, from front-desk collections and claim submissions to denial management. A high number of ar days isn’t just a financial problem; it’s a symptom of underlying process issues. In this guide, we’ll help you read the story your AR days are telling and show you how to write a better, more profitable chapter for your practice.
Healthcare is a business built on passion. You have to be passionate about the ability to heal others and help them on the path out of sickness. You have to be passionate about making sure that each patient you see feels that they have a partner in their health care and not just a robot. You have to be passionate about the area that you work in because these are the same people that you will see at the store, or at the movies. As a medical provider, you aren’t on an island; you’re a member of the community. But for all the passion that a health care professional can have for their chosen path, they also have to make sure that the practice they are in – no matter the size – is also generating enough revenue to stay in business. That is why having a medical biller to keep the accounts receivable days as low as possible is imperative for any healthcare practice. Accounts receivables is a term used to describe revenue generated that’s not yet been collected. To ensure cash flow is continuous, your medical office has the responsibility to maximize its revenue potential. But this is often easier said than done. In this blog post, we talk about accounts receivable and what you can do to speed up the process. Keep reading to learn more.
How Do Accounts Receivable Days Get Computed?
To get days in accounts receivable, take your average daily charge for the past six months and divide it by the number of days in those six months. Then divide the total accounts receivable by the average daily charge. Your math should look something like this:
Accounts Receivable = Average Daily Charge (past 6 mo.) / Days in the Same 6 Month Period
Then:
Total Accounts Receivable / Average Daily Charge
If you have a high-performing medical billing department, you should be able to have A/R days of 30 or less. An average department averages A/R in 40-50 days, while 60 days or more is considered underperforming.
The Standard Calculation Formula
At its core, the formula for A/R days is designed to show you how efficiently your practice collects the money it’s owed. Think of it as a financial health check-up. As one source puts it, “Accounts Receivable Days (AR Days) is the number of days it takes for a company to collect money from a customer after they’ve bought something on credit. It’s important because it shows how quickly a company gets its cash from sales.” In a medical practice, this translates to the average time it takes to receive payment from insurance companies and patients after a service is provided. A lower number of A/R days means your revenue cycle management is working effectively, providing the steady cash flow needed to cover payroll, supplies, and other operational costs. It’s a critical metric for understanding your financial stability.
Choosing the Right Time Period
The timeframe you use for your calculation can significantly impact the result, so it’s important to be thoughtful. It’s wise to “calculate your Days in A/R using charges from the past 3, 6, and 12 months. If there’s a big difference between the 3, 6, and 12-month results, pick the period that best shows what you expect for the next 6 to 12 months.” For example, if you recently implemented a new billing system or brought on a new major payer, a 3-month lookback might be more representative of your current performance than a 12-month average. The goal is to get a clear, actionable number that reflects your practice’s current reality, allowing for better revenue cycle administration and forecasting.
Using Calendar Days for Accuracy
To ensure your A/R days calculation is accurate and comparable to industry benchmarks, consistency is key. When running the numbers, you should “always use calendar days, not just business days.” This is the standard practice because it reflects the total time that your revenue is outstanding, without exceptions for weekends or holidays. It’s also crucial to be consistent with the values you use—compare gross charges to gross A/R or net charges to net A/R. Mixing them will skew your results and give you a flawed picture of your performance. Maintaining this discipline ensures that the data you rely on for decision-making is sound, which is the foundation of any good healthcare analytics strategy.
What is the Average Length of Time That It Takes To Get Your Money Back After a Patient Leaves Your Care?
The national average for primary care is around 36 days, while for urgent care payments range anywhere from 20 days to 40 days. The average payment receivable days for surgical care is 32 and pediatric practices average about the same.
Why Are Accounts Receivable Days Important?
You want to make sure that your patients stay healthy and get better, but you are also running a business that needs to have a strong profit margin to maintain your level of staffing and other things. That’s where A/R days come in. The A/R days are a metric that measures the length of time between a patient being discharged from your care and when the payment comes in. Your goal should be to make sure that the length of time is short as possible. One thing to track as part of A/R days is your payer mix. You should easily be able to determine which payers cut a check sooner than others.
The Impact on Working Capital
Think of A/R days as a direct line to your practice’s financial health. When your A/R days are low, it means cash is flowing into your business quickly. This working capital is what you use to pay your staff, cover rent, purchase new medical supplies, and invest in the growth of your practice. As one source puts it, “Lower A/R days mean your business gets cash faster, which helps you pay bills, invest in your business, and rely less on loans.” On the flip side, when A/R days are high, it can create significant cash flow problems, making it difficult to meet your own financial obligations. Efficient healthcare revenue cycle management is essential to keeping this number low and ensuring your practice has the capital it needs to operate smoothly and provide excellent patient care.
The Risk of Unusually Low AR Days
While the goal is to keep A/R days low, it’s possible for them to be too low. This might sound strange, but it can be a red flag. If your A/R days drop dramatically, it could indicate that your payment policies are too restrictive for your patients. For example, you might be demanding large upfront payments or turning away patients with less favorable insurance plans. This can hurt your practice in the long run by limiting patient access and potentially damaging your reputation in the community. The key is to find a healthy balance that ensures prompt payment without creating barriers to care. It’s a sign of a strong collections process, but you want to make sure it isn’t at the expense of future business.
Common Factors That Influence AR Days
Several factors can cause your A/R days to fluctuate. Your payer mix plays a huge role; some insurance companies simply pay faster than others. The efficiency of your billing department is another major factor—are claims being submitted cleanly and on time? Broader economic conditions can also have an impact, affecting patients’ ability to pay their portion of the bill. Even the technology you use matters. Outdated software can lead to errors and delays, while modern systems with real-time analytics can help you spot and resolve issues before they cause a backlog. Understanding these variables is the first step toward managing them effectively.
Alternative Names for AR Days
As you research this topic, you might come across a few different terms that all mean the same thing. Don’t let the jargon confuse you. Accounts Receivable Days, or A/R days, is often referred to by other names in financial circles. According to HighRadius, it is “also known as ‘Days Sales in Receivables’ or ‘Average Collection Period.'” No matter what you call it, the metric serves the same purpose: to measure the average amount of time it takes for you to collect payments that are owed to your practice. Knowing these alternative names can be helpful when reading financial reports or discussing your practice’s performance with accountants or consultants.
Actionable Strategies to Improve AR Days
Knowing your AR days is the first step, but the real work comes from actively lowering that number. Improving your accounts receivable process doesn’t have to be a massive overhaul. By implementing a few targeted strategies, you can significantly shorten the time it takes to get paid, which strengthens your practice’s financial health. These adjustments focus on preventing delays before they happen and managing outstanding accounts more efficiently. Let’s look at five practical ways you can start reducing your AR days and improving your cash flow.
Reduce Claim Denials
Claim denials are one of the biggest roadblocks to getting paid on time. Every time a claim is denied, your team has to spend valuable time correcting and resubmitting it, pushing your AR days higher. The best approach is to be proactive. Start by tracking why your claims are being denied. Are there common coding errors? Is patient information frequently missing or incorrect? Once you identify these patterns, you can train your staff to avoid them. A clean claims process with a high first-pass rate is the foundation of a healthy revenue cycle. Working with a dedicated medical billing partner can also help you catch and fix errors before claims even go out the door.
Use Electronic Billing and Payments
If you’re still relying on paper claims, you’re extending your AR days unnecessarily. Switching to electronic billing is one of the most effective changes you can make. Electronic claims are processed much faster—payers like Medicare often issue payments in about two weeks for electronic submissions, compared to a month or more for paper claims. This shift also reduces the chance of manual data entry errors and lost paperwork. Modern healthcare revenue cycle management systems make it simple to submit claims electronically and track their status in real time, giving you more control over your practice’s finances.
Implement Proactive Collections
Waiting until an account is severely past due to start collections is an inefficient strategy. Instead, implement a proactive approach. This means having a clear and consistent collections process that begins soon after a service is rendered. For patient balances, this could involve sending friendly payment reminders before the due date. Make sure your front-desk staff is trained to discuss payment options and collect co-pays at the time of service. A well-defined collections plan, managed through effective revenue cycle administration, ensures that everyone on your team knows their role and that outstanding balances don’t fall through the cracks, all while maintaining a positive relationship with your patients.
Offer Incentives and Disincentives
Sometimes, a little motivation can go a long way in encouraging prompt payments. Consider offering a small discount to patients who pay their bills in full at the time of service or within a short window, like 10 days. Online payment portals make it easy for patients to pay quickly and can be configured to automatically apply these discounts. On the other side, you can implement disincentives like late fees for overdue balances, as long as your policy is clearly communicated to patients upfront and complies with state regulations. These financial nudges can help prioritize your invoices and speed up your payment cycle.
Consider a Collection Agency for Older Accounts
Even with the best processes, some accounts will inevitably become seriously delinquent. For bills that are over 90 or 120 days past due, the chances of collecting them internally decrease significantly. At this point, it may be more cost-effective to turn these accounts over to a professional collection agency. While you’ll pay a percentage of the amount collected, it allows your staff to focus on more recent and collectible accounts. A strong RCM partner can help you establish a policy for when to send accounts to collections, ensuring you recover as much revenue as possible from these aged balances.
What Else Should I Know?
In addition to keeping the financial stability of your practice intact, having A/R follow up allows you to make sure that you never have claims that go missing. That is one of the reasons why you should consider working with Med USA. When you partner with us, it’s easier to collect your revenue. Here’s how we help:
- 98 percent of the charts close the same day.
- Credit balances are reviewed every month.
- Until there is a zero balance, we consistently send out statements to make sure payment is made in full.
- Payments are deposited directly into your bank account
- Practices that work with Med USA see a 40 percent decrease in accounts receivable days.
Get in touch with us today and we will give you even more detailed information on how we helped one multi-specialty medical group increase their revenue by 30% each visit and decreased that number by 40%. As a health care Revenue Cycle Management company with our own best-in-class accounts receivable standards, we understand the relationship between getting work done and focusing too much on the accounts receivable process. Staying on top of regulations and their application to your practice can feel like a time-consuming process with little reward. Customizing services to the client’s needs is the reason all of us at Med USA continue to successfully provide RCM services to provider groups of various size and geography. We learned long ago if you only offer one solution, it may not be the right one. That is why we have tailored services to each type of practice. Over nearly four decades of experience, Med USA has developed effective, functional processes that work for us. Visit our website and find out how our accounts receivable work will put your concerns to rest.
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Frequently Asked Questions
What is a realistic target for my practice’s AR days? While every practice is different, a great goal to aim for is 30 days or less. This indicates a highly efficient revenue cycle. If your practice is averaging between 40 and 50 days, you’re in the typical range, but there’s definitely room for improvement. Once you start seeing AR days climb to 60 or more, it’s a clear signal that there are underlying issues in your billing and collections process that need attention.
My AR days are high. Where should I start looking for problems? The first place to investigate is your claim denial rate. Denied claims are a major cause of payment delays because they force your team to rework and resubmit them. Look for patterns in why claims are being rejected; it could be simple coding mistakes or incorrect patient information. Also, review your front-desk procedures to ensure you’re collecting correct insurance details and co-pays at every visit.
You mentioned that unusually low AR days can be a problem. Can you explain that a bit more? It might sound counterintuitive, but yes, AR days that are too low can be a red flag. This could mean your financial policies are overly strict, such as requiring large upfront payments that are difficult for patients to manage. While this brings in cash quickly, it might also discourage patients from seeking care at your practice, which can harm your reputation and limit your growth over time. The goal is a healthy, sustainable collection speed, not one that creates barriers for your patients.
What is the single most effective change I can make to lower my AR days quickly? If you are not already doing so, switching from paper to electronic claims submission will have the most immediate and significant impact. Electronic claims are processed much faster by payers and dramatically reduce the risk of errors from manual data entry or lost mail. This simple technological upgrade streamlines the entire process, shortening the time between submitting a claim and receiving your payment.
How does working with a revenue cycle management partner help reduce AR days? A dedicated RCM partner brings specialized expertise and technology focused entirely on your financial health. They ensure claims are submitted cleanly the first time, which prevents denials before they happen. They also provide consistent, professional follow-up on all outstanding accounts, so nothing gets overlooked. This allows your in-house team to focus on patient care, while the RCM experts work diligently to shorten your payment cycle and improve your cash flow.
Key Takeaways
- Calculate AR Days consistently for financial clarity: This metric shows you exactly how long it takes to get paid, giving you a reliable indicator of your revenue cycle’s health and helping you spot potential issues early.
- Prioritize clean claims and digital tools: Reduce payment delays by focusing on accuracy from the start. Submitting error-free claims electronically is one of the most effective ways to lower your denial rate and shorten the time to payment.
- Adopt a proactive collections process: Don’t wait for accounts to become seriously overdue. A structured approach that includes collecting payments at the time of service and sending prompt reminders will significantly improve your cash flow.
