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Understanding the Concept of Accounts Receivable (AR) Days

Understanding the Concept of Accounts Receivable (AR) Days

The component of accounts is present almost everywhere; even in Medical practices. Now that has been mentioned, there is need to provide evidence. Let’s take the example of accounts receivable day (herein abbreviated as AR) and how it impacts the field.

Definition

Accounts receivable days is an accounting concept related to accounts receivable (as is obvious). It’s the length an entity takes to receive money for all the services it provides or goods it sells. This is important in that it allows the entity to determine how efficient it is at receiving short-term payments it’s owed. In other words the measurement determines how effective the entity’s credit and collection efforts tally against each other. Note that the term ‘entity’ here is used to refer to a business enterprise (which could be a company, store, a pediatric clinic, medical facility of DME Company).

How it works

This principle is often applied to the entire set of invoices the entity has outstanding at a given point in time rather than to a single invoice. Doing so at an individual level gives a measurement to indicate when the customer is having cash problem as they will try to stretch out the payment period.

The correlation between AR and your Medical practice

There are benchmarks available to identify if the AR days for your medical practice are considered to represent ‘poor’ or ‘excellent’ AR management (figures vary depending on the industry and pre-arranged payment terms).  For example, the benchmark available for average practices in AR Days is around 60 while high performing billing operations are somewhere in the 20’s range. AR days figure close to the standard or above show that there is much opportunity to improve the management of the revenue cycle for  your Medical Practice.  A strong medical billing company should be able to advise you and your practice on how to reduce and optimize the AR days.   If your practice is under 30 AR days consistently, in general, this is a ‘good’ number.
Importance of low AR days

What does it mean for you to have low AR days? In practice, it means that you get paid for your services prior or that you take a very short time to collect all monies owed to you. This implies that you can effectively ramp up service delivery by acquiring the necessary equipment and supplies (which is of interest in our case) early in advance or before your stock runs out. You’ll never be limited by cash flow.

This concept may be counter-intuitive at times so it would be wise for you to tread with care. All in all, to avoid cash constraint, you should aim at minimizing the number of AR (Accounts Receivable) days.

Be effective

The most efficient way of utilizing the AR days concept would be in which you track its trend-line on a monthly basis. By doing this, you’ll be able to detect any changes on the entity’s ability to collect debt. For better clarity, compare the metrics for the same month of the preceding year.

All in all, selecting the right medical billing partner can make a major difference in maintaining low AR days in your medical practice. Make the smart move now.