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Managing and Collecting Accounts Receivable- The Lifeline of Your Practice

In our experience with dental practices, managing and collecting accounts receivable is one of the biggest financial burdens a dentist can face. Yes, it’s a financial burden. A bad turnover ratio can impact you more than you realize.
First off, let’s discuss some red flags that may alert you to an issue. If you are generating a lot of income, but do not have the money to pay bills and other liabilities, then a potential issue could be that you are not collecting accounts receivable. Basically, you are performing the work on your patients and you are recognizing the revenue, but you are never collecting the money for that service.
So, why is this happening to you? Our first question to you would be: “What are your collection policies?” If the patient does not pay at the time of service, then they should be mailed or e-mailed an invoice within a few days. Monthly statements should then be mailed or e-mailed to remind them of the balance that is owed. By the way, we encourage e-mailing invoices to reduce associated costs with mailing, such as paper and postage (it’s also good for the environment). If the patient has insurance, how long does it take for the claim to be filed by your office? Obviously, the sooner the better, as it typically takes at least 6 to 8 weeks to receive the insurance money, and that is assuming that there are no issues with the paperwork that was filed. You could also hire an agency that specifically handles collection of accounts receivable. If you are able to collect a significant amount of accounts receivable by outsourcing the process, it’s worth paying someone else.

One major issue you could encounter with poor accounts receivable turnover is when you are applying for a loan, or have to meet certain loan covenants. Cash flow is a major aspect that any bank is going to focus on. Obviously, if you are not able to collect accounts receivable, and therefore have no cash, the bank is going to question if you could make loan payments. Also, on a related note, if you aren’t actually collecting money, how are you going to pay bills, payroll and liabilities? From a tax perspective, if you report income on an accrual basis, you will run into a problem with owing taxes, but not having the money to pay the said taxes – you have a timing issue.

Hopefully, we have provided you some valuable information for managing your accounts receivable. It is always a good idea to monitor your accounts receivable on a scheduled basis (whether it’s weekly, biweekly or monthly). If you need assistance, our firm offers CFO services, in which we would help you monitor your accounts receivable.
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