Maybe we could just stop after reading the title. Call me Captain Obvious because this is pretty much a no brainer. No one wants people owing money to them for over 3 months or longer. The problem is that most dentists have no idea of what their actual summary for aged accounts receivable looks like. When was the last time that you had a staff member give you the current, 30 days, 60 days, 90 days and over amounts owed to the practice?
Just for arguments sake, have your front desk person print that last page of your aged accounts receivable as of today. What you will find are titles for each aged term along with the dollar amount for the Current, 30, 60, and 90 and over aging. In addition, most practice management software will give you the percentage for each of the dollar amounts of the total accounts receivable. The Current category should have the highest percentage at 80%+ with the 30 and 60 day taking up the rest and 90 days and older should be close to 0%. Let me interject a little known fact to doctors. The default setting for your practice management software when running an aged accounts receivable report is to give you a “net” accounts receivable total. It includes credit balances and debit balances. The software automatically subtracts the credits from the debits. This means that the total you see at the bottom of you report is not accurate. If you have a lot of credit balances the total dollar amount as well as the percentage in each category will be significantly higher than what you see. A credit balance is a liability to a practice. You owe someone a service, a product, or the return of his or her money. Every state has laws governing credit balances. There is a limited time that you can hold these funds in your accounts receivable. Failing this time limit has consequences. You must send a check to the patient or, if unable to do so, you must write a check to your State for unclaimed moneys. If you do not do this there is a daily fine. Another way to look at these credit balances is if you are selling your practice. They actually lower the value that you could sell it for, or if you are a buyer, the amount you should pay for the practice should be less. So, let’s run the report again and set a parameter of greater than $.01. This will eliminate the credit (negative) numbers. You could also just run a credit balance report and subtract it from your net aged accounts receivable totals.
It used to be that “experts” would say that you should have about one month’s collections for your accounts receivable totals. These same self-proclaimed experts justified this erroneous benchmark by saying that this one-month’s outstanding collections would continue to come in day-by-day and add a level of safety by giving you income during poor months. What a load. Today, in an era where we do not act as a bank and most often use outside lenders to pay up front for a fee to cover our patient’s investment in dentistry, you should have no more than two weeks collections in your aged accounts receivables. Any more than that signals that you have room for improvement and, if done properly, should lower your overhead while eliminating stress at the front desk from chasing overdue accounts. In fact, if you strongly encourage a prepayment discount of 5%, you should be able to collect over 100% of your production (or at least no less than 98%). You should even see a decrease in cancellations and no-shows when your financial arrangements are designed to fit the treatment into the patient’s budget while making it abundantly clear as to how, when, where, and why the patient needs to follow these established protocols for that investment.
Keep in mind that a poor accounts receivable total or just a poor percentage for 90 and over is not actually the “problem”. Not having complete control of your accounts receivable is a “symptom” of epidemic proportion that your office has poor case presentation, worse financial arrangements, and possibly poor training for staff causing prolonged payments from insurance companies as well as less than ideal follow up. These problem areas always arise from less than consistently well-executed protocols and systems. If you think about it, people who owe you money tend to have a higher cancellation and no-show predilection. You will also find that when you do try to collect what they said they would pay you, there will be a 50/50 chance that they will threaten a lawsuit. It is surprising how awesome your dentistry looks and feels until you ask the patient to actually pay for it. This sounds weird, but there is a term for this: “The Prostitute Syndrome”. This is why that profession always gets their pay up front, because the value of the service diminishes rapidly after it is delivered. One last thing to add to this is that people who owe you money don’t refer others to your practice.
Here are some simple quick fixes for a challenged aged accounts receivable total.
1. Have a written financial policy and financial arrangement policy initialed or signed by the patient before any dental work is done. No exceptions. This includes the doctor. It must be printed and include your entire financial policy.
2. Never let the doctor alter the financial policy unless they want to make the collection calls.
3. Try and have a primary staff member who has great people skills and is very analytical be in charge of doing the financial arrangements.
4. Recurring charge: Many of us do Ortho where the total amount is entered at the beginning of treatment but we allow the patient to pay it out monthly along the term of the treatment. The problem with this is that after the third month it will end up in the 90 day and over column and appear to be in need of collections. Every dental software package contains a “recurring charge setup account” so that even though the computer remembers that they owe the entire sum, it only will show each month’s due amount or their monthly installment. In this way if it were to go to 30 days, you could take action and if they always pay on time it will not affect the aging report.
5. Take the time and train, cross train, and measure the performance of those who ultimately affect your accounts receivable totals. The buck needs to stop with someone.
6. Try to have the front desk address EOBs and late insurance every morning for the first 30 minutes. You should never have to wait more than 2-4 weeks to complete the insurance side of accounts receivable. In a managed care world, this can be the number one reason for poor aged A/R reports.
Bottom line: Make sure you don’t wait until you can’t pay your bills to address your accounts receivables protocols and performance results. This is how you Summit.
Michael Abernathy, DDS
PS. Please email me with your questions, concerns, or suggestions. This will help me pick topics that are important to you and your staff.