Concept Architecture
Concept
Theoretically, Days in Accounts Receivable (Days in A/R) is a financial performance measure that quantifies the average number of days required for an organisation to collect payment after services have been provided. It is a recognised liquidity and revenue cycle management indicator based on accrual accounting principles. In healthcare, the measure evaluates the efficiency of billing and collections processes and is widely used in hospital financial management and health economic performance assessment.
Mathematically, Days in Accounts Receivable is calculated by dividing the accounts receivable balance by the average daily net patient service revenue. The resulting value estimates the average time outstanding for receivables, enabling comparisons across reporting periods and healthcare organisations regardless of their size.
In practice, Days in Accounts Receivable is used by hospitals, insurers and healthcare systems to monitor cash flow, assess billing performance, identify collection inefficiencies and support financial planning. Health economists use the measure to evaluate operational efficiency, estimate working capital requirements and assess the financial impact of improvements in revenue cycle management.
Purpose
Used to measure the average time required to collect outstanding receivables, evaluate revenue cycle performance, monitor organisational liquidity and support financial and health economic decision-making.
Mathematical Formulae
Primary Formula
Days in Accounts Receivable = Accounts Receivable � Average Daily Net Revenue
where:
Average Daily Net Revenue = Annual Net Patient Service Revenue � 365
Supporting Formulae
Average Daily Net Revenue = Net Patient Service Revenue � Number of Days
Accounts Receivable Turnover = Net Credit Revenue � Average Accounts Receivable
Days in Accounts Receivable = Number of Days � Accounts Receivable Turnover
Related Mathematical Methods
- Accounts receivable turnover
- Working capital analysis
- Liquidity analysis
- Cash conversion cycle
- Revenue cycle management
- Financial ratio analysis
Example
A hospital reports:
- Accounts receivable = �12,000,000
- Annual net patient service revenue = �146,000,000
Average Daily Net Revenue
= �146,000,000 � 365
= �400,000
Days in Accounts Receivable
= �12,000,000 � �400,000
= 30 days
The hospital therefore has 30 Days in Accounts Receivable, meaning that payments are collected, on average, 30 days after services are provided.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| Division | =B2/365 | Calculate average daily net revenue. |
| Formula | =A2/(B2/365) | Calculate Days in Accounts Receivable. |
| AVERAGE | =AVERAGE(C2:C13) | Calculate average monthly Days in Accounts Receivable. |
| IF | =IF(D2>45,"Collection Delay","Within Target") | Compare performance with organisational targets. |
| ROUND | =ROUND(A2/(B2/365),1) | Report Days in Accounts Receivable to one decimal place. |
VBA (Optional)
Automate calculation of Days in Accounts Receivable across hospitals, departments and reporting periods while generating revenue cycle dashboards, liquidity reports and financial performance summaries.
Sources
- Gapenski LC, Reiter KL. Healthcare Finance: An Introduction to Accounting and Financial Management.
- Cleverley WO, Cleverley JO, Song PH. Essentials of Health Care Finance.
- HFMA. Healthcare Financial Management Association ? MAP Keys and Revenue Cycle Metrics.
- Finkler SA, Smith DL, Calabrese TD. Financial Management for Public, Health, and Not-for-Profit Organizations.
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes.
- Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation.
Related Concepts (2)
Frequently Asked Questions (6)
What is days in accounts receivable?
A financial metric measuring the average days it takes an organisation to collect payment after billing, an indicator of collections efficiency.
Source: Horngren, Datar & Rajan 2015
What collection time does days in accounts receivable measure?
Days in accounts receivable is a financial metric measuring the average time it takes to collect payment after billing. It measures how many days, on average, pass between sending a bill and receiving the money. It is an indicator of collections efficiency, a high figure signalling that payment is slow to come in. It counts from the point of billing, the moment a claim or invoice is issued. It bears on the revenue cycle, the whole process of turning care delivered into payment received. How long it takes to get paid is what it measures. Horngren, Datar and Rajan (2015) set this out.
Source: Horngren, Datar & Rajan 2015
What does days in accounts receivable measure?
Days in accounts receivable measures the average days it takes an organisation to collect payment after billing, so it gauges how many days, on average, pass between billing and collecting payment, an indicator of collections efficiency. This measurement of collection time defines it. So days in accounts receivable is a financial metric measuring the average days it takes an organisation to collect payment after billing, an indicator of collections efficiency.
Source: Horngren, Datar & Rajan 2015
What is days in accounts receivable an indicator of?
Days in accounts receivable is an indicator of collections efficiency, so the average days to collect payment after billing signals how efficiently the organisation collects. This indication of collections efficiency defines its purpose. So days in accounts receivable is a financial metric measuring the average days it takes an organisation to collect payment after billing, an indicator of collections efficiency This counting from billing is what days in accounts receivable uses to gauge the average time to collect payment.
Source: Horngren, Datar & Rajan 2015
From what point does days in accounts receivable count?
Days in accounts receivable counts from billing, so it measures the average days it takes an organisation to collect payment after billing, an indicator of collections efficiency. This counting from billing defines it. So days in accounts receivable is a financial metric measuring the average days it takes an organisation to collect payment after billing, an indicator of collections efficiency This relationship is what makes days in accounts receivable a metric of the collection stage of the revenue cycle.
Source: Horngren, Datar & Rajan 2015
How does days in accounts receivable relate to the revenue cycle?
Days in accounts receivable relates to the revenue cycle as a metric of part of it: the revenue cycle is the process from billing to collecting payment for care, and days in accounts receivable measures the average days to collect payment after billing. So days in accounts receivable gauges a stage of the revenue cycle, connected as the process of getting paid and a metric of how long its collection stage takes.
Source: Horngren, Datar & Rajan 2015
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 30 Mar 2026
Content version: 1.0.0
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