Many providers ask me how to calculate their A/R ratio. I usually go one step further and not only help them determine their ratio, but also have them look at the percentage of accounts receivable over 120 days. This is the correct way to evaluate your accounts receivable.
Take the average of your last 3 months of production (charges) and get your 3month average charge amount. Divide your total accounts receivable by your last 3 month average charge amount. This will give you an A/R Ratio. We feel that an acceptable ratio is not greater than 1.3 and most of our A/R ratios are at 1.0 or less.
The next step is to get a breakdown of aging for your accounts receivable. If you have more than 10 % over 120 days old, you may have some collection problems.
Contact Lori Gifford at BillRight at (303) 805-7686 for a free accounts receivable analysis if you still have questions.
