How to Analyze Accounts Receivable
Understanding accounts receivable is not easy, and often due to the tedious nature of analysis, many physical practices skip over or delay this critical aspect of running a successful practice
There are several excellent A/R ratios you can and should be using to analyze not only your receivable balance, but the practice’s collection efforts as well.
- Avg Days Receivable. This statistic is calculated by dividing the A/R balance by daily average charges [YTD Charges/365 days]. You can use 30.41 (365/12 months) in place of 365 days when calculating monthly ratios. You want to keep this figure under 90 days.
- Accounts Receivable Turnover Rate. This is calculated by dividing the A/R balance by average monthly receipts. This statistic indicates the number of months of work that have not yet been collected yet.
- Accounts Receivable Ratio. Calculate this analytical tool by dividing total accounts receivable by average monthly charges [either for the YTD or a rolling 12 month average]. For primary care and other office-based practices, this figure should be between 1.0 and 2.0 of average monthly charges. All other practices (ex. Specialty practices) should have between 2.0 and 3.0 of average monthly charges in their accounts receivable balance. Any practice that has over 4 times of average monthly charges in its accounts receivable balance has a collection problem!
Frequency of Analysis
Reviewing and analyzing practice receivables on an ongoing basis should be a commonplace occurrence and exercise for ALL medical practices. Unfortunately I have seen quite often that it is not the case. Size of practice does not discriminate here – larger practices can be just as guilty of this offense as smaller ones. Make sure you are performing this task on a monthly basis; Ensure that proper review and analytical procedures of the accounts receivable are in place and implemented each and every month. In today’s healthcare operating environment and all of its associated management pressures, one cannot ill afford to pay strict and close attention to practice accounts receivables.