Question about net collections rate

[caligas]

somewhat technical question about how out practice manager calculates net collections rate:

Take January for example (but this could apply to any time period, they usually use the last 6 months). They look at the charges for January then they subtract out contractual right offs, and then compare this number to the ACTUAL cash collections for January. My question is that these charges that were made in January do not necessarily correlate to the cash collections that occurred in January. To figure out the collections rate does one not need to follow out the specific charges and figure out what was collected on those exact charges?

hope my question is making sense, thanks

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[ChiDO]

You have to look at the same time period. So your manager is doing it correctly. The longer you work and more data, it all evens out in the end.

AR is typically 30-90 days, so it would be extremely tough to analyze Sept charges and then figure out when those collections actually occurred.

 

[DocVapor]

Caveat: I'm not an accountant.

This sounds like you're really asking whether your practice manager uses cash based or accrual based accounting practice, and which is better.

What you describe about how you think it should be done sounds similar to accrual based accounting. But it seems like they are using cash based accounting which is simpler and usually more appropriate for small companies like anesthesia practices.

If you're a partner or partnership track you should be able to contact the groups accountant to have a rundown on the basics if you so desire.

 

[caligas]

Caveat: I'm not an accountant.

This sounds like you're really asking whether your practice manager uses cash based or accrual based accounting practice, and which is better.

What you describe about how you think it should be done sounds similar to accrual based accounting. But it seems like they are using cash based accounting which is simpler and usually more appropriate for small companies like anesthesia practices.

If you're a partner or partnership track you should be able to contact the groups accountant to have a rundown on the basics if you so desire.

Yes, as I read and understand more we are definitely using cash based accounting, which seems common for this situation.