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Key Peformance Indicators: Net AR & Payment Percentage

October 21, 2013

What are the two things you should absolutely be looking at each month to determine how well your billing department is running?

While there are certainly many indicators that should be looked at on a monthly basis to truly measure the success or lack thereof of your billing department there are two that I consider to be most telling. “Net Accounts Receivable” (Net A/R) and “Average Payment percentage”. Net accounts receivable is calculated by taking the total A/R at the beginning of the month and comparing it to the total A/R at the end of the month. Average Payment percentage is calculated by taking your total payments and adjustments for the previous 6 months, adding them together and coming up with a total. Then take just your payments and divide them by the total to come up with your payment %. Once you have figured out you payment % you can utilize it to determine how much the increase in net A/R actually cost your center in collections that month. If you have a positive net A/R, multiply it by the payment % you have calculated to see how much in actual dollars you missed out on collecting for the given month. If you have a negative net A/R, multiply it by the payment % you have calculated to see how much in additional dollars your billing operation has collected by reducing the A/R that month.


A/R 1/01/12 = $100,000

A/R 2/28/12 = $150,000

Net A/R = $50,000

Payments collected from 7/1/11 – 12/31/11 = $500,000

All Adjustments (contractual, bad debt etc.)  = $500,000

Total = $1,000,000

Payments $500,000 / Total $1,000,000 = 50%

Payment % = 50%

Value of net A/R = $50,000 x 50% = $25,000

While these are just two of many calculations we look at on a monthly basis, they are what I consider the first stop in determining the effectiveness of our billing process for a given month. A high net A/R may not necessarily mean that your billing staff is not doing a good job but it is definitely a reason to speak with your billing staff to figure out what is causing the increase in net A/R. With the filing limits getting shorter and shorter it is essential that whatever is causing the increase in A/R gets addressed as quickly as possible to avoid the dreaded timely filing denial and writing off of claims.

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