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How to Calculate Accounts Receivable Collection Period

Divide the practice’s net credit sales for the year by 365 days and then divide the average balance in accounts receivable during the year with this result.

Dec 23, 2023 6 min read
How to Calculate Accounts Receivable Collection Period

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Discover how CareStack is revolutionizing appointment management and patient experiences for dental practices and DSOs everywhere. Dive into the technology that's shaping the next chapter in dental care efficiency and reliability.

The Accounts receivable collection period refers to the amount of time it takes for a dental practice to collect payments owed by its patients and insurance providers. It can be used to make sure that your practice has enough revenue to meet its financial obligations, thus improving the proper working of your practice. It serves as an indicator of how well your practice handles its accounts receivable, thereby making it a crucial factor for practices that depend largely on their revenue or cash flow for its smooth functioning. A practice should always be able to maintain its accounts receivable collection period to the minimum if they want the practice to be successful and their revenue to be high. Remember, the lower the accounts receivable collection period, the faster the payment would be and the higher the revenue would be. Knowing how to calculate and analyze your collection period will ultimately help you increase the effectiveness of your accounts receivable management.

How can you calculate the accounts receivable collection process?

In order to calculate the average accounts receivable collection period, first, divide the company’s net credit sales for the year by 360 or 365 days. This gives you the average credit sales per day. Now divide the average balance in accounts receivable during the year with this result. 

Some of the processes involved in the calculation of the accounts receivable collection process are:

Gathering the data

Keep a tab on the data you need for calculating accurate account receivable collections. The various requirements for calculation need to be identified and collected without any errors or mistakes. The important data that needs to be collected include net credit sales, average accounts receivable balance, and accounts receivable turnover ratio. 

Calculating the collection period for accounts receivable

The formula for calculation needs to be clearly understood for an accurate accounts receivable collection period, and the data collected should be appropriately used in the formula. Once all the collected data is put into the equation, you can easily solve it to get the required result easier and faster.

Why should you calculate the accounts receivable collection period?

A practice can use its accounts receivable collection period to identify trends in its own insurance claim processing. It can be used to compare your practice’s revenue cycle with that of your competitors. So that you can identify your practices’ shortcomings and work towards improving them. Doing a proper calculation of the accounts receivable collection period can help your practice identify any mistakes in claim submission and take steps to prevent the same from happening again. This helps in reducing the number of claim denials and unpaid claims, thus improving the overall functioning of the practice. The main goal of your practice should always be to reduce the accounts receivable collection period to the least and get the payments from your patients and insurance providers as soon as possible without any delay so as to help your practice in its growth and development. But just identifying and analyzing the areas of improvement won’t help your practice. Instead, you need to take steps for improvement from the data calculated. Remember, the revenue flow of your practice depends highly on its accounts receivable collection period and knowing it would help your practice to take measures to collect the payment without any delay within the given time frame.

Role of AR management

It is the responsibility of a practice’s AR management to keep track of their AR collection period and to make sure that the payments are collected within the given time frame. Make sure you keep an eye on your practice’s accounts receivable collection period so as to monitor its performance and growth at every point without making any mistakes. It also helps your practice in implementing strict rules or policies for collecting timely payment from your patients without any difficulties by tracking trends that may show continued payment delays or unpaid claims by certain patients. 

How does it affect your practice

It’s important to understand that claims with accounts receivable collection periods of more than 60 or 90 days are at a high risk of going unpaid, which can greatly hit the overall revenue of the practice. Therefore, it becomes important to limit your accounts receivable collection period to below 50 days. If claims take more than 50 days to process, then strict measures need to be taken to collect the payments on time so as to reduce unpaid claims and ensure that the functioning of the practice is not affected. 

Do not forget that as the revenue of the practice gets hit, the quality of facilities in your dental practice also gets affected. Complete payment of  accounts receivables translates to increased cash flow, leading to better quality of patient care. Have your accounts receivable collection period minimized to the lowest so as to prevent maximum in revenue leakage.

It can also help you determine the effectiveness of your RCM and work on the areas that need improvement. It shows how well your collection policies are working out, whether they are helping your practice or not, so that you can work accordingly. You can continuously monitor your accounts receivable collection period and compare it with your previous years to check the performance status of your practice for points of improvement.

Make sure you know the accounts receivable for all payers individually, so you can easily identify patients with high accounts receivable collection periods and take measures to get the payment faster. Practices often overlook the need for the proper calculation of accounts receivable among the other complex processes of RCM, without realizing that it is one of the most crucial and important steps in RCM, which can determine the success of a practice. Ignoring or paying less attention to the calculation of the AR collection period can harm your practice in many ways.

Conclusion 

The Accounts receivable collection period can be a really powerful tool for measuring the success of your practice. Calculating our practice’s receivables  and all the other related tasks can be really stressful for your practice. Partnering with a dental RCM service provider can be the perfect solution as they guide you through the complex process of revenue cycle management so that you can concentrate on the more important needs of your practice,like patient care.  lThey help you calculate the accounts receivable collection period and determine the growth of your practice without you having to worry about it in any way.

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