Like all businesses, dental practices have to deal with fees and collections. Collections are the financial mainstay of any business; they contribute not only to profitability, but also to cash flow. While many professionals view collections as an unpleasant process, they are essential to the overall health of any business. Some of the reasons are relatively self-evident, while others are not.
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PROFITABILITY
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The ultimate profitability of a practice usually is reflected in the doctor’s compensation. While studies indicate that less than 7 percent of all doctors establish a profitability or income target each year, most professionals have a general idea of the amount of income that they would like to earn. Unfortunately, many of these same professionals do not find out what their total income or profitability will be until they are told by their accountant in December. At this point, if they would like to make adjustments, it is far too late in the year.
In some cases, it is not that the practice did not have sufficient production, but that the practice simply did not collect enough of its production. Accounts receivable may be lumped into profitability totals on paper, but in reality, it still is uncollected money. A strong collection system will allow doctors to minimize accounts-receivable issues and achieve profitability or income goals, which is a responsible method for achieving goals set in annual business financial planning.
Excellent financial controls ensure that the financial health of the practice remains strong while achieving outstanding patient satisfaction.
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CASH FLOW
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In a tight economy, increasing numbers of doctors have experienced low or inconsistent cash flow in the practice. Cash flow simply refers to the amount of cash that is coming into the practice at any given time. It is simple enough to recognize that the practice needs to take in more money than it spends to pay all its bills and make a profit.
If the practice takes in less money than it spends, it will need to either borrow money from the owner (usually the doctor) or use a line of credit or loan from a financial institution. In the last 24 months, an increasing number of doctors have used bank lines of credit periodically to pay bills or staff while waiting to catch up with patient payments. This is referred to as "negative cash flow," which leads to confusion, a host of time-related issues and, of course, interest payments to the financial lender.
A negative cash flow typically indicates that the practice may not have a strong collection system (including components like third-party payment options) and that many of the overdue payments are unlikely to be collected. Current studies indicate that approximately 60 percent of money overdue to a practice by more than 120 days will never be collected.
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CUSTOMER SERVICE
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Dental practices are not financial institutions with proven and streamlined systems to manage patient debt. Most practices will be far superior in performance and better able to serve patients if they can collect money at the time of service and try to reduce patient debt to a minimum.
An interesting perspective to consider is that it is bad customer service to allow patients to owe money to the dental practice. The reason that overdue payments reflect poor customer service is that patients, who behave like consumers, gradually can begin to rationalize reasons for not paying their bills. The longer the time it takes to collect the money, the more likely some patients will find reasons to be unhappy with the practice or the dentistry. Whether it is the way they were treated, the quality of the dentistry or the fee, they may blame the practice or the dentist, and this potentially can result in an extreme reaction such as a malpractice action. Simply collecting the fee at the time of service can help eliminate these issues.
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COLLECTING AT THE TIME OF SERVICE
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A number of financial options are available to dental practices, but I strongly recommend that patient payment plans directly to the office not be one of them. Some practices may have limited success with this methodology, but I have rarely seen it work well. More often than not, the collection of payment plans is much lower than the doctor realizes.
A strong suggestion is that fees should be managed and collected as close to the time of service as possible. Guidelines would include collecting the copayment before beginning any treatment if insurance is involved and collecting at least one-half of the fee before beginning any treatment if insurance is not involved. Additional recommendations include establishing clear, written guidelines for the patient regarding the payment requirements, collecting all final fees before completing any dental treatment and establishing a clear procedure for reminding patients of the balance due and the deadline for payment.
While this may sound restrictive, consider how things work in the rest of the business world. What other business allows people to pay when they want to, or gives them extended payment plans without interest and financial and legal backing? While you may believe that you have financial and legal backing, a service-oriented business like a dental practice does not want to engage in prosecuting patients to collect money. The patient always will have the last word, which is to tell others in the community about their displeasure with the practice.
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SUMMARY
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There is a reason why most businesses manage fees and money very closely with specific guidelines. It is not to be inflexible, but rather to establish excellent financial controls to ensure that the financial health of the business (or practice) remains strong while achieving outstanding customer (or patient) satisfaction.
TOP
PROFITABILITY
CASH FLOW
