Summary
Accounts receivable in a medical practice is the money already earned for care delivered but not yet collected, split between insurance claims still in adjudication and patient balances for co-pays, deductibles and self-pay charges. Each visit can carry two separate collection processes running at different speeds.
- The split: One visit produces two receivables: an insurance claim to the payer and a patient balance for the co-pay, deductible or self-pay portion, and each is collected on its own timeline.
- The benchmark: The American Academy of Family Physicians says Days in AR should stay below 50 at minimum, and 30 to 40 days is preferable.
- The fix: Once the patient balance is confirmed on Xero or QuickBooks Online, Paidnice runs the patient-facing reminders, discounts and late fees automatically, and its customers get 8 in 10 invoices paid within the first 60 days of using Paidnice.
What is accounts receivable (AR) in a medical practice?
Accounts receivable in a medical practice is the unpaid balance for care already delivered, owed partly by the patient's insurer and partly by the patient. Every visit that is billed rather than paid at the desk adds to it, and it stays on the books until both the claim and the patient balance are settled.
Balances that age past 90 days are the ones most likely to become bad debt, written off because the claim was denied too late to appeal or the patient stopped responding.
The medical version of AR differs from a standard business invoice in one way: a single visit produces two receivables. The claim goes to the payer and sits in adjudication. The patient portion (co-pay, deductible, coinsurance or self-pay) is only final once the payer has responded. That is why patient chasing in a practice starts later than on a normal invoice, and why the two need separate processes.
Free: Payment reminder email templatesCopy the reminder emails for before, on and after the due date.How does the AR process work in a medical practice?
The AR clock starts when a service is delivered and an invoice or claim is raised, and it keeps running until the insurer and the patient have both paid their share. The five stages are registration and eligibility, coding, claim submission, payer adjudication, then patient billing.
- Registration and eligibility. Insurance details and the patient's financial responsibility are confirmed before or at the visit. Most later denials trace back to an error here.
- Coding and documentation. The visit is coded for the claim. A wrong code delays or denies payment and restarts the clock.
- Claim submission. The claim goes to the payer, ideally the same day. Every day it waits is a day added to Days in AR.
- Payer adjudication. The insurer pays in full, pays in part, or denies. Denials go back through appeal, which can add weeks.
- Patient billing. The remaining balance is invoiced to the patient. This is the stage that behaves like any other business receivable and can be automated in the same way.
What is a good Days in AR benchmark for a medical practice?
A medical practice should keep Days in AR below 50 at minimum, and 30 to 40 days is the preferable range, according to the American Academy of Family Physicians. The AAFP also recommends tracking claims aged past 90 or 120 days separately, because a healthy average can hide a growing pile of old balances.
For the patient-billing stage, use the wait that small healthcare businesses have outside the US. Xero Small Business Insights measures it by industry: about two weeks in Australia and nearly four in New Zealand.
| Market | Health Care and Social Assistance | All industries | Gap | Rank, slowest first |
|---|---|---|---|---|
| Australia | 14.7 days | 24.2 days | -9.5 days | 18th of 19 |
| New Zealand | 28.5 days | 24.6 days | +3.9 days | 2nd of 10 |
| UK | 23.7 days | 29.6 days | -5.9 days | 12th of 14 |
Source: Xero Small Business Insights, September 2026. See the full data on the Paidnice accounts receivable statistics dashboard.
Use the figure as a floor for patient balances.
The two metrics to track are:
- Days in AR is the average number of days between a service and its payment. Calculate it by dividing total AR by average daily charges (total charges for the period divided by the days in the period).
- AR aging splits the receivables by how long each has been outstanding, usually in 0 to 30, 31 to 60, 61 to 90 and 90+ day buckets. The 90+ bucket is the one to watch, since collectability drops sharply past that point.
Days in AR falls fastest when claims go out the day of service, denials are worked within a week, and patient balances are chased on a fixed schedule rather than when someone remembers.
What are the best practices for managing AR in a medical practice?
Three practices cut Days in AR fastest: clear payment policies stated at the time of service, prompt billing with automated follow-up, and accurate coding that avoids denials in the first place.
1. State the payment policy before the visit
Patients should know their co-pay, deductible and self-pay responsibility at the time of service, and the practice should collect what it can at the desk. A balance the patient expected is paid faster than one that arrives as a surprise six weeks later.
2. Bill promptly and follow up on a schedule
Submit claims the day of service and invoice the patient the day the payer responds. From there, a fixed reminder schedule keeps the balance in front of the patient until it is paid: a reminder before the due date, one the day after, then escalating follow-ups at 7, 14 and 30 days. Invoice reminder software runs that schedule without a staff member drafting each message.
3. Code accurately and work denials within a week
Coding errors and missing documentation are the most common causes of denial. Regular audits and staff training reduce them, and a denial that is reviewed and appealed within days is far more likely to be paid than one found in a quarterly clean-up.
A dedicated AR person or an outsourced billing service can own the payer side (submission, follow-up, denials and reporting). The patient side is repetitive enough to run on software.
What are the biggest AR challenges medical practices face?
Claim denials, delayed payments and patient financial hardship are the three recurring causes of aged AR in a medical practice, and each has a different fix.
| Challenge | Usual cause | What fixes it |
|---|---|---|
| Claim denials | Coding errors, late submission, missing documentation or medical-necessity disputes | Eligibility checks at registration, coding audits, same-day submission, and a denial queue worked weekly |
| Delayed payments | Payers paying slowly; patients not reminded or unclear on what they owe | Regular payer follow-up; for patients, a clear statement, a pay link, automated reminders, and a prompt payment discount or late fee where the policy allows |
| Patient financial hardship | Deductibles and self-pay balances the patient cannot clear in one payment | A payment plan with fixed installment dates and autopay, agreed early rather than after months of silence |
What mistakes cost a medical practice when it manages AR?
Three mistakes tie up cash.
Aiming at 50 days. The AAFP says stay below 50 at minimum and prefers 30 to 40. At $10,000 of charges a day, AR is $500,000 at 50 days and $400,000 at 40 (Days in AR × daily charges), so $100,000 more waits.
Fix: aim for 40 or below.
Waiting until day 90. An invoice that is still unpaid 90 days after its due date has only about a 4 in 10 chance of being paid within a year of its due date. Source: our analysis of invoice data from over 1,000 Paidnice customers, across all industries. See when an overdue invoice becomes bad debt.
Fix: remind from the payer's response.
Billing the patient once. On the day an overdue reminder goes out, about 12% of those invoices get paid. With no reminder, only about 4% do. Source: our analysis of invoice data from over 1,000 Paidnice customers, across all industries. See our reminder data.
Fix: remind at 1, 7, 14 and 30 days overdue.
How can medical practices use technology to manage AR?
Medical billing software reduces coding errors and speeds claim submission, and a separate accounts receivable automation layer such as Paidnice handles the patient-facing reminders, discounts, late fees and payment plans once the balance is confirmed on the ledger.
Paidnice connects to QuickBooks Online and Xero and works from the invoices already in the ledger. For a practice that means:
- Reminders by email and SMS on a schedule per patient group, escalating to a named person in the practice.
- Prompt payment discounts applied to the invoice for a set number of days, then removed automatically.
- Late fees posted to the ledger where the practice's policy allows them.
- Payment plans with installment reminders and autopay, which patients can set up themselves from the portal on the Pro plan.
- Statements sent weekly or monthly, showing every open balance in one place.
Paidnice customers get 8 in 10 invoices paid within the first 60 days of using Paidnice. Paidnice does not touch claims, coding or payer adjudication; it starts where the patient balance is final.
Compliance and ethics in AR management
US practices must protect patient health information under the Health Insurance Portability and Accountability Act (HIPAA), which extends to how billing data is transmitted and stored. Check any tool you add to the billing process against your own compliance requirements before connecting it.
Collection should stay respectful. That means clear statements of what is owed and why, payment options that fit the patient's situation, and a fixed, predictable escalation rather than aggressive tactics. A practice that offers a plan early keeps both the patient and the money.
Frequently asked questions
How can I reduce Days in AR in my medical practice?
Reduce Days in AR by submitting claims the day of service, working denials within a week, and putting patient balances on an automated reminder schedule the day the payer responds.
What is the role of invoice reminder software in a medical practice?
Invoice reminder software sends payment reminders to patients on a fixed schedule by email and SMS, so balances are followed up without staff drafting each message. It applies to the patient portion only, not to insurance claims.
How can medical practices manage claim denials effectively?
Manage denials by reviewing each one for its reason code, fixing the process that caused it (usually eligibility or coding), and appealing within the payer's window. A denial queue worked weekly stops appeals timing out.
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About the editorial team
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.
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