Why this is such a critical piece of practice profitability in the new economy.
What is your collection rate? You may be surprised to learn that it might not be what you think it is.
In a recent study of several hundred new clients, Levin Group found that most reported a 99% or higher collection rate. However, once the accounts receivable were analyzed for uncollectable debt, it turned out the average for collections was approximately 96.5%—a significant discrepancy.
In the new economy, collection systems play a crucial role in practice growth. How crucial? Consider this—the difference between 99% and 96.5% can mean a $2,500 loss to the bottom line for every $100,000 of production. Stated another way, an $800,000-a-year revenue practice is losing approximately $20,000 or more each year. After 20 years, that totals $400,000—a staggering sum of lost revenue. Remember that the more profitable your practice is as a business, the greater your ability to achieve financial independence sooner.
The New World of Accounts Receivable
In today’s economy, it is more important than ever to have a tight collection process and carefully defined protocols to reduce or eliminate collections over 90 days. To determine the effectiveness of their collections process, practices should answer the following questions:
- Does my practice have a clearly written and documented patient financial management system that is followed by the financial coordinator at all times?
- Has the financial coordinator been fully trained on the financial options and collection systems?
- Are there pre-set times that the financial coordinator works on collecting overdue accounts?
- Does the financial coordinator have written scripts that have been refined for each financial option and overdue account collection calls?
- Does the practice have a documented overdue collection system that is strictly followed until it is evident that patient’s debt is uncollectible?
- Does the practice regularly write off uncollectable accounts so as to have a realistic picture of what part of overdue accounts is collectable versus uncollectable?
If you answered “no” to one or more of these questions, it is critical to immediately address your accounts receivable and collection process. The reason cannot be clearer—today’s economy is causing accounts receivable to rise in most practices.
What’s the solution for gettingpatients to accept treatment? Levin Group advises its clients to establish The Four Financial Options™.
Four Ways to Keep Your A/R Under Control
In the economic downturn, Levin Group has strongly recommended The Four Financial Options™ to clients. This has allowed practices to collect 99% of all money owed within 60 days. In fact, the majority is collected at the time of the patient visit. The Four Financial Options are:
- 5% off for cash up front
- Credit cards
- Half at the beginning and half before completion of treatment
- Patient financing
5% Off for Cash Up Front
This option eliminates all collection processes, which in turn reduces labor costs associated with long-term collections as well as excess overhead. Furthermore, it changes how patients view treatment. Individuals who have paid for treatment typically have a positive feeling toward treatment. They keep their appointments and are more likely to accept additional treatment. Conversely, individuals who have not paid for treatment sometimes try to convince themselves that they are not completely happy and deserve a discount or refund. Collecting money up front creates a situation where patients want to enjoy the treatment benefits they have paid for.
For most consumers, credit cards are almost the same as cash. Paying by credit card, in the mind of the patient, is no different from writing a check, and consumers are not concerned about any fee the dental practice will have to pay to a credit card company for this service.
Credit cards make collection for dental practices extremely easy. Once it has been charged to a credit card, the collection process for that patient has ended. We do not recommend discounts on credit cards, as there is a charge-back to the practice for credit card use.
Half at the Beginning, Half Before Completion of Treatment
In this case, we literally mean before the end. In other words, when the patient presents for the final appointment and still owes a balance to the practice, it should be collected prior to patient treatment. Most patients understand their obligation and are more than happy to take care of their balance when requested.
Practices will have to decide what to do if a patient does not bring payment at the time of final treatment. Some practices have set policies, with excellent scripting, that if patients do not bring the payment, the appointment will be rescheduled. While this does create a no-show and is a bit of an inconvenience, it trains patients that they do have to pay the practice. Practices that provide treatment to patients who have made a decision not to pay at the scheduled time often end up with collection problems.
This option has become more important than ever before in a difficult economy. Patient financing allows patients to be approved within 3 minutes by telephone or web. This option has helped many practices to find credit for patients who cannot afford treatment out of pocket. Because so many people depend on credit for a variety of purchases, it is critical that dental practices make this available as well.
The benefit of patient financing is that the practice does not have to deal with ongoing collections, interest, and uncollectable accounts. Best of all—it allows patients to afford treatment. When working with a top dental patient-financing company, there are numerous options for patients, making it easy and convenient for patients to receive treatment.
Controlling accounts receivable is more critical than ever before. Practices that allow A/R to increase unchecked are at great risk. The changing economy has increased the necessity for outstand ing patient accounts receivable systems that permit patients to have treatment while allowing the practice to achieve 99% collection rates and profitability. By applying the principles in this article, practices can tighten up their account receivable systems. Remember, every percent not collected equals thou sands of dollars of lost profit for every $100,000 of production.
Inside Dentistry readers are entitled to receive a 50% courtesy on a Levin Group Practice Production Analysis, an in-office analysis and report of your unique situation conducted by a Levin Group Senior Practice Analyst. To schedule the next available appointment, call 888-973-0000 and mention “Inside Dentistry” or firstname.lastname@example.org with “Inside Dentistry” in the subject line. For more information on Levin Group programs and seminars, go to:http://www.levingroupgp.com.
About the Author
Roger P. Levin, DDS
Dr. Levin is the founder and CEO of Levin Group in Owings Mills, Maryland.