Case study: Out-of-control A/R

In the current economy, an increasing number of practices are starting to have problems with their accounts receivable.

Roger P. Levin, DDS, MBA

In the current economy, an increasing number of practices are starting to have problems with their accounts receivable.

The case

A 42-year-old general dentist with a solid gross revenue of $655,000 was unable to pay bills and staff on time without borrowing regularly on his line of credit.

The finding

• Practice revenues were $675,000
• More than 50 percent of accounts receivable were 90 days overdue.
• The accounts receivable total was equal to 3.1 times the monthly gross revenue.
• The practice was sending 121 statements per month.
• Patients were not asked to pay at the time of services. Instead, they were asked, "Would you like to pay today, or would you prefer we send you a bill?"
• The dentist was borrowing regularly on a bank line of credit at a significant interest rate.
• The dentist had not taken a salary in four months.

Evaluation of finding

This practice had out-of-control accounts receivable and no specific system or financial policy in place for managing collections. The staff was not comfortable dealing with money. In fact, the majority of the patients were trained not to pay when they visited the practice and many had trouble or declined to pay their bills on time.

Levin Group solutions

Levin Group immediately implemented a documented system for financial options. Every patient was expected to accept one of four financial options —

5 percent off for cash up-front
Credit card payment
Half of the fees due prior to treatment and the other half prior to final treatment appointment
Patient financing using companies such as CareCredit (800) 300-3046, Dental Fee Plan (877) 337-7526, and HelpCard (800) 945-4357. These plans help to make dentistry more affordable

The staff was extensively trained on practice fees, financial policies, and scripting for consistently presenting all payment options and collecting money in a nonconfrontational manner. It was no longer acceptable to offer billing, and patients were simply advised, "Mrs. Jones, we no longer bill our patients. We have found that collecting fees at time of service allows us to keep our fees as reasonable as possible." Notice the benefit statement focuses on keeping fees reasonable rather than getting the money.

An immediate plan to manage outstanding accounts receivable was implemented including a series of three phone calls and follow-up letters over a four-week period. A concerted effort was made to help patients manage their debts by using patient financing.

A policy was set in place for the financial coordinator to contact any patient who was one day overdue on payment to work out an immediate collection plan before the situation became out of control.

Results

The practice increased revenue to $831,000 within 12 months. This was due to implementing new management systems including clear patient financial options. This allowed patients who had previously declined treatment due to lack of sufficient funding to proceed with care by taking advantage of one of the four affordable financial options.

Accounts receivable were reduced to 1.4 times average monthly gross revenue. Part of this was due to turning delinquent accounts over to collection agencies, but in fact the practice managed to collect over 65 percent of outstanding receivables and increased current collection ratio to 98.3 percent of all production.

The number of statements mailed per month was reduced to 41, which indicates excellent collections at the front desk. Over 11 months, the dentist was able to eliminate his line-of-credit debt and costly interest payments.

As a result of these actions, he was able to start taking regular salary with practice profit at 37 percent. He also began an excellent retirement program and set milestones to reach financial independence by age 63.

Roger P. Levin, DDS, MBA, is founder and CEO of Levin Group, Inc., the leading dental management consulting firm specializing in implementing documented business systems into dental practices. Levin Group is dedicated to improving the lives of dentists through proven dental practice management and marketing consulting programs that help practices reach higher levels of success and profitability. Dr. Levin has authored more than 2,500 articles and 48 books on practice management. Levin Group can be contacted at (888) 973-0000 or at www.levin group.com.

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