Transform your cash flow with two accounts receivable key ratios

Managing accounts receivable (AR) effectively is vital to maintaining a strong cash flow and ensuring financial stability in a chiropractic practice.

Two key ratios, accounts receivable turnover and days sales outstanding (DSO), provide valuable insights into how efficiently payments are collected and converted into cash. By understanding and optimizing these metrics, DCs can reduce payment delays, improve liquidity and sustain long-term business success.

First, calculate accounts receivable (AR) turnover

AR turnover assesses how frequently your practice collects outstanding payments within a given period. A higher ratio indicates efficient collection processes and prompt patient payments, which directly contribute to cash flow stability and operational efficiency.

Use this formula for AR turnover:

AR turnover = net credit sales / average AR

Steps to calculate AR turnover

1. Gather these initial figures:

• • Net credit sales for the period (excluding cash transactions)AR balance at the beginning of the period
  • AR balance at the end of the period

2. Calculate your average AR balance by adding the starting and ending AR balances, then dividing that number by two.
3. Apply the formula, plugging in the net credit sales number and average AR balance, and divide. That number is your AR turnover ratio.

A higher turnover ratio indicates frequent collections, which improve cash flow predictability. For example, a ratio of six means receivables are typically collected six times per year.

Low AR turnover ratio? Here are some improvement strategies

You can take steps to increase your AR turnover ratio:

• Implement clear patient payment terms upfront, ensuring patients understand expectations.
• Offer multiple payment options, such as online payments, credit card processing and automated billing.
• Send timely invoices.
• Follow up on overdue accounts with structured reminder emails or phone calls.
• Utilize automated invoicing and collection software to streamline payment tracking and reduce manual errors.

Now, figure out days sales outstanding (DSO)

Days sales outstanding (DSO) measures the average number of days it takes to convert credit sales into cash. A lower DSO suggests an efficient, streamlined collections process. Monitoring this metric allows chiropractic practices to minimize delays in receiving payments and improve financial forecasting.

Use this formula for figuring out days sales outstanding (DSO):

DSO = AR / credit sales x number of days

Steps to calculate days sales outstanding (DSO)

1. Gather these figures:

• • Total AR at period end
  • Net credit sales for the period (excluding cash sales)
  • Number of days in the period

2. Apply the formula, multiplying credit sales by the number of days in the period and then dividing that number by your total AR. That number is your DSO.

A lower DSO reflects faster cash conversion. For instance, a DSO of 45 days means payments are typically collected within 45 days of a sale.

Strategies to reduce your DSO

If your DSO is high, here are some ways to lower it:

• Establish proactive collections procedures, such as sending payment reminders before due dates.
• Encourage early payments by offering small discounts or incentives for timely payment completion.
• Ensure accurate and efficient payment application, promptly matching incoming payments to invoices.
• Strengthen patient communication regarding billing expectations to minimize disputes and payment delays.

Break down AR by payer type

To gain a more complete understanding of your AR and how efficiently payments are collected and converted into cash, it’s essential to analyze your AR by payer type. Categorizing receivables by commercial insurance, Medicare, workers’ compensation, personal injury and other sources helps identify trends in payment speed, reimbursement reliability and potential bottlenecks.

For example, Medicare reimbursements may follow a predictable schedule, while workers’ compensation claims often experience delays due to processing complexities. By tracking payer-specific collection patterns, chiropractic practices can adjust billing strategies, improve follow-up procedures and optimize cash flow management for greater financial stability.

Final thoughts

Regularly monitoring AR turnover and DSO ensures chiropractic practices maintain financially healthy while optimizing their revenue cycles. Implementing strong collection strategies can enhance liquidity, minimize payment delays and foster long-term practice growth.

By prioritizing financial efficiency, practitioners can focus more on patient care and professional development while sustaining a thriving business.

Derrick D. Wallery, DC, MBA, is a seasoned doctor of chiropractic with more than 20 years of clinical and executive experience in the healthcare industry. He holds a master’s degree in business administration and has successfully owned and operated multiple multi-specialty clinics, an outpatient surgery center, a management services organization and a revenue cycle management company, among other healthcare-related ventures. Wallery has also provided consulting services, including business and healthcare operations, management and strategic development, to a wide range of healthcare providers and entities, including DCs, physical therapists, medical doctors, hospitals and surgery centers. For more information, call 779-251-1045 or email derrick@physiciansadminservices.com.