By Steven J. Anderson, Total Patient Service Institute, Founder and Chief Creative Officer. Crown Council, Founder
I’m often asked – what is a reasonable amount to have in accounts receivable? The answer depends on the size of your practice, but a general rule of thumb is that your accounts receivable (AR) should not exceed one month’s worth of production. If you produce $100K a month, and your AR is higher than that, you’ve got a problem. If a large percentage of your AR is over 60 or 90 days old, you’ve got an even bigger problem.
If your AR is out of control, that’s not the real problem – it’s just a symptom of a bigger issue. It’s like going to the doctor when you have a fever and a rash. You want the doctor to find out what’s causing those symptoms and deal with that, so the symptoms go away permanently.
To Find the Real Problem – Look at Your Financial Arrangements Systems
If AR is the symptom, the root of the problem is usually your financial arrangements system. Here is a checklist of five things you can do to implement healthy financial arrangements systems, so your AR doesn’t get out of control.
1. Written Explanation of Financial Relationship Between Practice and Patient
Think of it as a mutually agreed upon code of conduct, specifying responsibilities for each party. The explanation should be clear and easy to understand. Every patient should sign off on it.
It should explain how the practice is responsible for clearly communicating what the patient’s estimated financial responsibility will be. That includes doing the necessary work, such as scoping out insurance benefits, to give patients the most accurate information possible so they have a realistic expectation about costs. Patients are responsible for paying for the treatment within a specified time. Patients need to understand up front that when it comes to their financial relationship with the practice, it’s a two-way street.
2. Internal Financial Guidelines
Most practices do a better job managing AR if they have clear guidelines that outline specific options for the financial arrangements available to patients. Without any guidelines, you essentially forfeit control of the financial options offered to patients. Having guidelines in place gets everyone in your practice on the same page. Internal guidelines should spell out things like:
- Under what circumstances you can offer a discount and what the discount would be
- List of third party financing programs available
- How the practice deals with insurance
- Clear timeframe for when the practice bills patients
3. Signed Financial Arrangement Document with Patients Before Treatment.
Don’t start treatment until the patient has signed off on the financial arrangements. This document lists the treatment along with the fee, which by signing, the patient agrees to pay. If the patient has insurance, you can provide an estimate of what their portion will be, emphasizing that it’s an estimate since you don’t know what insurance will pay until after the work is done. Bottom line, this document is about getting patients to commit to paying, so you leave nothing to chance when it comes time to collect.
4. Have at Least Three Third Party Financing Options in Place
I recommend three because different companies focus on different segments of the market. For example, if someone needs to have $20,000 or more worth of treatment, there are patient financing companies that specialize in larger amounts, while others specialize in smaller amounts. Some companies specialize in larger treatment plans for patients who have a decent credit score, while others are geared to deal with patients who have credit ratings as low as a 500 FICO score. By having at least three financing companies that cover a range of needs, you have options to offer each of your patients depending on their personal situation.
5. If You’re Practice Mails Out Statements – Update Your System.
Mailing out statements used to be standard practice, but today it represents an antiquated system that wastes time, money and doesn’t work. In reality, most people don’t read their mail anymore. When someone receives a statement in the mail, it’s perceived as being unimportant – definitely not urgent. Often, it’s simply discarded. If you haven’t already done so, it’s time to update your billing to an electronic system, and there are all kinds of options available. My favorite is Text to Pay. You can set it up to automatically send personalized text messages to patients that make it easy for them to pay. For instance, you can text your patient a message that says: Hi Sue. We just received your insurance reimbursement. Our portion due is $200. Click on the link below to pay. We’ve had far more success with that approach than with mailing out statements.
If you would like to review the financial procedures at your practice, contact our team at the Total Patient Service Institute. We are proud to partner with Engage Advisors to help dental practice owners build strong and financially healthy businesses.