If you want a successful practice, you need a great collections process, and there’s a metric to help measure it — your Accounts Receivable Ratio. It measures how efficient your collection process is at turning production into collection revenue, and you can calculate it with a simple equation: divide your average A/R over a time period by your Net Production for that same time period.
For example, if your average monthly A/R is $90,000 and your monthly Net Production is $100,000, your A/R ratio is 0.9. Ideally, you want to stay at or below a 1:1 ratio, which means for every $1 you produce, you’re owed no more than $1.
You need to track this metric, because it has a significant impact on your cash flow, decision-making, and financial health. If your ratio is too high, it means you’re producing but not collecting, so you’ll constantly feel like you’re spinning your wheels and not getting anywhere.
To start making an impact on your A/R ratio, use these strategies:
- Run your A/R ratio monthly and track the trend. Small increases will impact your bottom line, so make sure it doesn’t creep up.
- Tighten your time-of-service collection systems. With a clear financial policy and aligned communication, you’ll achieve better results at keeping your ratio low.
- Review outstanding insurance balances weekly. Many poor ratios stem from a failure to follow up claims promptly, so make sure you have a team member that owns this responsibility.
This journey starts with knowing your ratio, so calculate it, and then implement countermeasures to start making a difference. You don’t need to aim for perfection, but if you can create progress month after month, it’s going to get better and you’re going to see a real impact everywhere in the practice.
