Your accounts receivable has the answer
Key takeaways
- Consider your practice’s ability to take on risk when offering flexible payment options.
- When leveraging flexible payment options, it’s important to monitor accounts receivable (AR) as a percentage of production.
- Have payment follow-up and AR processes in place.
- Follow up on insurance denials in a timely manner.
You often hear, “Let me think about it.”
Cost is one reason people don’t accept treatment, probably even more so during inflationary times. In fact, according to a recent study, dental care expenses present higher financial barriers than any other type of health care service in the United States.
It’s a frustrating position for doctors. You know your patient needs treatment, but sticker shock looms heavily over payment conversations.
One solution practices have been good at implementing is offering flexible payment options. Offering various ways to pay is one way to mitigate financial fear. The more flexible you are with payment options, the more likely you are to have more patients move forward with the treatment they need.
HOW FLEXIBLE SHOULD YOU BE?
CPA and Financial Planner Angie Svitak says your flexibility level should depend on your practice’s ability to take on risk.
“Flexible payment plans can use many variables such as extending the pay period beyond the length of treatment, offering a 5% discount for full up-front payment, lowering down payments or a combination of these,” Angie says. “The point is to consider your specific patient demographics and think outside the box.”
Offering more flexible payment options lowers the barrier to entry and increases case acceptance. However, a well-tuned sales process is vital to this tactic’s success. If a patient’s credit score is less than the threshold set by the practice, or if they have a history of not making timely payments, they may not be a good candidate. Not every patient is a fit for flexible payments and dental professionals need to understand when to offer it as an option.
Another thing to keep a pulse on is rising delinquency rates, which is always a concern with flexible payment options. What you can’t have is a 15% increase in delinquency and a 5% increase in case acceptance. Practices need good processes in place for payment follow-up and accounts receivable so that case acceptance always outperforms delinquency. Contracting a third party to handle collections can reduce the administrative burden, relieve stress and reduce risk in your practice.
WATCH ACCOUNTS RECEIVABLE
When leveraging flexible payment options, it’s important to monitor accounts receivable (AR) as a percentage of production. In the simplest terms, AR are monies owed for production that has already been performed. This could be money the patient owes, or money billed and owed by insurance.
CWA’s latest Orthodontic Comparison Report data showed a natural correlation between the decreasing down payment fees and increasing accounts receivable. While that doesn’t naturally mean an increase in delinquency, it does mean that practices need to work harder to collect payments.
Another area Angie likes her clients to be aware of is patient credit and how that impacts their accounts receivable aging. For example, if you have a significant number of patients who prepay for treatment or you haven’t cleaned up your patient accounts for some time, the patient credits could skew the aging, making your accounts receivable appear healthier than it really is.
HEALTHY BENCHMARK
Many times, receivables get overlooked. It may not be a standard practice to review if receivables have gone up or down each month, or if the aging categories are properly distributed.
Receivables should range between 100% – 125% of your average monthly collections. From there you should look at each aging category to gauge the health of your AR.
The current or 0-30 days past due category should be 70%. Only 10-12% should be in +30 days, +60 days and +90 days categories, individually.
Regarding patient credits, it’s important to understand your state’s unclaimed property laws. Each state is different and has different requirements with respect to how often they need to be reported and remitted to the state agency if you are not able to return the credits to the patient.
“Maintaining receivables today is more important than ever. Should economic conditions become more difficult, getting money from patients will become even harder,” Angie reminds.
Make efforts to get receivables to healthy levels. This could be as simple as ensuring the patient checkout procedures are consistent and you have a policy that staff adheres to when collecting the patient responsibility portion at the time of treatment. If you are doing in-house financing or contracts receivable for orthodontics, best practice is to keep a credit card on file that is automatically charged each month.
In addition, having a quality staff member responsible for insurance billing and collections is critical, as there are times when insurance claims are denied and need to be resubmitted to the insurance company. If your staff is not watching for or following up on denials in a timely manner, insurance collections can be delayed and negatively impact cash flow. If your receivables are already significantly aged and it’s more work than your staff can accommodate, consider using a third-party service to do the insurance billing and collection to help you get caught up.
OTHER REASONS ACCOUNTS RECEIVABLE IS IMPORTANT
Considering selling your practice soon? AR is a valuable asset that can be bought or sold in a dental transition.
When the AR is sold in the transition, the seller receives a lump sum at closing and is no longer responsible for trying to collect outstanding payments from patients. In most cases, this is advantageous, as selling the AR means the seller receives immediate payment for their work versus relying on the buyer to collect the payments. In addition, this is beneficial for the buyer too, as it allows them to participate in the practice collections starting on day one rather than having to wait to collect on new production.
GET CUSTOM INSIGHT ON GROWING YOUR PRACTICE’S PROFITABILITY
Not sure where to start? CWA’s expert team can run the numbers and determine if your flexible payment structure is working for or against your financial goals. Reach out to our team for a complimentary consultation today.
