The average accounts receivable is determined by dividing by two the total starting and ending receivables for a predetermined time period (often monthly, quarterly, or annually). The accounts receivable turnover ratio is a tool used in financial modelling to forecast balance sheets.
High or increasing percentages are a sign that the revenue cycle management in your practice may need some work. Less than 12% is preferred, however the number of receivables older than 120 days should range between 12% to 25%.
Companies should aim for a ratio of at least 1.0 to ensure they collect the whole amount of average accounts receivable at least once during a period. In general, a greater accounts receivable turnover ratio is advantageous.
Average receivables are calculated by dividing the total beginning and ending receivables over a given period of time (such as monthly or quarterly) by 2.
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