Transworld Systems White Paper Dental

Transworld Systems White Paper Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are January 2010 Introduction

Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are Introduction Accounts receivable turnover--the average amount of time that it takes a patient to pay outstanding invoices—is an indicator of your practice’s financial strength. It’s also used by banks and other financial lenders, when a practice is seeking the necessary capital and equipment to expand or make improvements aimed at better serving your patients. While most practices understand the importance of keeping receivables current, when it comes to actually collecting past due balances, efforts often fall short and can place the practice on precarious financial footing. This paper presents a strategy for preventing receivables from careening out of control as well as collecting existing past due balances. Accounts receivable turnover ratio: the higher the better. This ratio can vary from two or three to as high as twenty, depending on your monthly revenue and the speed at which you collect. This is truly a measure of your cash flow— your ability to convert receivables into cash. Therefore, the higher the ratio, the better your ability to collect and the greater your cash flow It’s a simple formula: revenue/receivables = turnover (BNET.com). For example: if your average revenue is $100,000/month and your average receivables is $35,000, then your accounts receivable turnover ratio is approximately 2.85 ($100,000/$35,000 = 2.85). As you can see, to increase the ratio, you would need to increase revenue, decrease receivables or both. As a business owner, you must ask yourself what the return will be to decrease receivables for example, by investing in added staff or turning over the collections function to a third party agency. Are you compromising patient goodwill or financial stability? There’s a fine line between maintaining patient goodwill and financial stability. One should not be compromised for the other. However, one indicator of the health of a practice is its cash flow. Cash flow and customer goodwill are linked. Cash flow impacts your ability to effectively service your paying patients. Typical dental practices don’t actively pursue outstanding balances until they reach 90 days aging. According to a U.S. Department of Commerce study, nearly 30% of accounts at 90 days aging will not be paid/collected. Allowing accounts to lapse too far into 60- or 90-day aging not only puts your practice at risk, but also the quality of service you provide your paying patients. Are you compromising service levels provided to paying patients by tying up your already stretched administrative resources to chase debt that will likely not be paid? Additionally, are you cutting into your profits by paying part-time resources to collect the uncollectable? When it comes to receivables, the old adage—“an ounce of prevention is worth a pound of cure”—applies. Most small to mid-size practices lack the staff to adequately pursue balances, especially balances that have gone beyond 90 days. Furthermore, the staff is © 2010 Transworld Systems Inc. 2

Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are trained to add value to the practice by providing outstanding patient administration such as prompt scheduling, estimates, billing, etc. Chasing after delinquent accounts is not a value added service when it doesn’t result in recovery of past due balances, which is often the case. Even with a traditional third party collection agency, the average rate of collection is approximately 15%, of which the practice only receives approximately 70% (American Collectors Association). Having an effective accounts receivable policy can have a more positive impact on patient goodwill and retention than allowing accounts to lapse into aging. A patient with an outstanding balance is less likely to keep up with routine dental appointments. If they have an urgent need, they’re more likely to go to another dental provider where they will not have to pay their delinquent account before receiving services. The more current the patient’s account, the more likely the patient will be to follow consistent dental care. The following section outlines several tactics that will help you preserve patient relationships while protecting your profitability. Eight ways to increase accounts receivable turnover ratio. There are a number of tactics that practices can implement right now that will ensure prompt payment and avoid alienating patients or sacrificing potential referral business. Many of the following tactics will not only increase your cash flow, but also streamline the collections process. 1. Implement clear, concise payment and collections policy including: a. Make sure patients understand upfront that payment is due when services are rendered. If they are unable to pay in full at the time services are rendered, determine the payment plan up front. b. Allowable forms of payment: cash, check, money order, and credit cards. c. Broken appointment charge and policy. d. Note that patient is responsible for total charge. We do not look to a third party for payment. e. Office policy on insurance assignment. Full fee due now or just estimated deductible? f. Maximum number of payments allowed? Promissory notes or Truth in Lending forms? g. Interest, billing or service charge - rate and when applied. 2. Train staff to diplomatically explain and enforce payment and collections policy including: a. Always ask for payment when services are rendered, even if the patient can only make a partial payment. Do not offer to bill the patient later. © 2010 Transworld Systems Inc. 3

Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are b. Avoid open ended questions when it comes to payment. Don’t say, “How much will you be paying today, Mr. Smith?” Instead, approach with the mindset that full payment is expected, and if the patient says they’re unable to pay in full, then offer the other forms of payment such as credit card or financing based on your policy. c. Often a simple upfront reminder of your payment policy at the time the appointment is made or when an estimate is provided can increase the likelihood of securing payment. In some cases and depending on the practice’s monthly revenue, having a dedicated resource to handle the financial end of the business is more efficient and cost effective. d. Know your legal rights and patient rights covered under the Fair Debt Collection Practices Act and the Consumer Protection Act. 3. Accept several forms of payment including credit cards and financing to gain more upfront payments. 4. When it comes to appliances and other laboratory related services for which the practice must pay, always obtain at least a portion (30% or more) of the amount due up front from the patient with the balance due upon final work. 5. Verify patient contact information upfront and keep records up-to-date with subsequent appointments or calls. 6. Be proactive! Don’t wait until an account is 60 or 90 days past due to make the first contact. Run monthly aging reports to gain a snapshot of your accounts receivable. a. Make your first contact after the 30-day mark. It doesn’t have to be a cold, stern collections letter. There are diplomatic, friendly reminders but the reminder should always ask for payment in full by a specific date. 7. Avoid the expense of sending statements as a means of collecting. Remember, the best opportunity to collect is while the patient is still in the office. However, if you need to send statements, then don’t send more then three. If you haven’t received payment after the first or second contact, then sending additional statements will not be fruitful. Also, optimize your statements to ensure payment. Avoid sending aging dates and the total amount due. Instead, include payment options, the amount due and always include a due date. 8. Outsource collections a. Turn over past due accounts to a conventional collections agency for a range of approximately 30 cents on the dollar of the amount collected (American Collectors Association). b. Apply a third party web-based collection services that allow you to retain control over your accounts while they handle the work of sending collections demands for a low, flat fee. There are collection agencies that specialize in dental collections. They give the practice assignment options that can include: deciding on the intensity of the collection effort warranted on each © 2010 Transworld Systems Inc. 4

Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are account placed, the ability to add collection fees to outstanding balances, web-based reports and “thank you” letters sent to patients who resolve their accounts to your satisfaction. Are you a dental practice or a lending institution? Allowing patients’ accounts to slip past 30 days is in effect lending money by extending credit. There’s nothing wrong with extending credit if your office policy permits and your staff has the bandwidth to manage, or you outsource to a third party financing company. However, extend credit intentionally, up front and not as a result of allowing the patient’s account balance to lapse into 60- or 90-day aging. Many practices extend credit unintentionally, creating an accounting backlog that must be addressed by a staff already burdened with the daily activities of running the practice. The staff is often not trained in effective credit and collections processes and their attempts to collect past due balances not only end in frustration, but also don’t produce results. While most practices prefer to manage patient relations directly, they turn over accounts to traditional collection agencies only after the accounts have reached the 90- to 120-day aging. At this point, data indicates that 30% will not pay (U.S. Department of Commerce Study). Recovering receivables is like recovering a stolen car… the sooner reported, the greater the likelihood of recovering. The cost and opportunity of outsourcing collections There are two options for collecting past due accounts: (1) percentage-based collections in which a percentage of the amount collected is retained by the agency. An average rate is 30%; (2) flat fee-based agencies which collect past due balances and charge a fixed amount per account placed. With percentage-based agencies, practices do the upfront work of initial collecting. After all attempts to collect have proven unfruitful, the collections agency takes control of the collections process and the practice pays a commission on the amount collected. The process is often more aggressive and much less emphasis is placed on patient relations. A flat fee-based agency provides web-based tools and services that allow the practice to maintain as little or as much control as desired. The emphasis is on maintaining patient relations early on in the aging with diplomatic tactics that typically produce results without alienating patients and usually on the first contact. A more aggressive approach can be invoked for older balances and only those that the practice, not the agency, chooses. The disadvantages of outsourcing collections include:  Cost o Percentage based collections makes budgeting less controllable. However, flat fee-based agencies provide more control over costs since you know the fee up front. © 2010 Transworld Systems Inc. 5

Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where the Mouths Are  Potential for alienating the patient o Patients might be upset if contacted by a collections agency that is not diplomatic in nature. However, flat fee-based agencies provide greater diplomacy when used early on (around 60 days aging) and often their first contact produces results.  Losing control over the process o Some practices prefer to defer control to a third party, making percentage- based agencies the preferred choice. However, percentage-based agencies base their level of collection effort on the balances of the accounts. This can be a disadvantage for dental practices because of comparatively small balances. o Others prefer to turnover the collections work while retaining control of the patient, making flat fee-based agencies a more appropriate choice. On the other hand, outsourcing collections provides:  Greater impact because collections is coming from a third party  Possible implications for patient’s credit rating  Removal of the dentist as the “bad guy” Conclusion The overall health of a successful dental practice is often indicated by cash flow. Accounts receivable turnover ratio is a measure of how well the practice is collecting its accounts receivable. A low accounts receivable turnover ratio can indicate poor cash flow and place the practice at risk. Whether a practice uses its own staff or outsources collections, the sooner the attempt to collect, the greater the probability of recovering the balance. With the right policies, processes and outsourced partners in place, practices can maintain better control over their accounts receivable and cash flow. About Transworld Systems Inc. Transworld Systems Inc. ®, a wholly owned subsidiary of NCO Group, Inc.®, is an industry leader in profit recovery with headquarters in Santa Rosa, CA, and more than 100 offices throughout the United States and Puerto Rico. Transworld and its service brand GreenFlagSM Profit Recovery are redefining the collection industry by providing businesses and medical organizations with better tools for recovering bad debt and past due accounts. Transworld has collected $2.4 billion over the past 5 years for more than 60,000 clients. In addition, Transworld Systems specializes in the dental market throughout the United States and has recovered $121 Million for over 10,000 dentists. For more information, call 1.888.446.4733 or visit www.transworldsystems.com. © 2010 Transworld Systems Inc. 6

http://www.dentalblogs.com	159
http://translate.googleusercontent.com	3
http://twitter.com	1

Transworld Systems White Paper Dental

by Doug Graham on Feb 12, 2010

Accessibility

Categories

Tags

Upload Details

Usage Rights

3 Embeds 163

Statistics

Transworld Systems White Paper Dental — Document Transcript