The Great Receivables Debate!

Nov. 1, 2000
I can`t turn away 80 percent of my patients who don`t have the credit to afford comprehensive care all at once. We`ll do a little at a time according to the patient`s finances, which keeps us extremely busy and profitable. It has to be done right, though. You can`t just give them unlimited, undocumented credit. Years ago, Roxann came up to me and told me that when we use our KISCO consultation forms and get it in writing, our collections go up. So, our experience shows that it is very important


Joe Steven Jr., DDS


Lorraine Hollett and

Patrick Wahl, DMD, MBA

Should collections equal production?

I can`t turn away 80 percent of my patients who don`t have the credit to afford comprehensive care all at once. We`ll do a little at a time according to the patient`s finances, which keeps us extremely busy and profitable. It has to be done right, though. You can`t just give them unlimited, undocumented credit. Years ago, Roxann came up to me and told me that when we use our KISCO consultation forms and get it in writing, our collections go up. So, our experience shows that it is very important to get it in writing.

I just don`t think dentistry is in the same arena as "fun items" to most patients. Go up to 100 individuals at a mall and give them a choice between a $5,000 surround-sound TV system or $5,000 worth of dentistry, and I`ll bet you at least 95 of them will take the TV.

You`re starting to make me feel inferior about my 97 percent collection rate. I will gladly give up 3 percent (much of which is insurance write-offs) to net my current level of collection. Most doctors who use outside finance companies usually pay the interest for the patient or take a cash discount prior to treatment. Either way, a 97 percent collection rate could not be achieved in this manner. If your system is collecting 100 percent without any of these discounts, then maybe I do need your course. But, as I keep stating, this will only take care of a fraction of our patients who qualify for these loans.

No one is suggesting you turn away patients who can`t afford comprehensive care all at once. We`re suggesting simply that - as Howard Farran advises - you fill orders that are paid for. As you know, Howard has a high-volume practice like you do. Of course, we meet our patients` needs by phasing treatment along with the various payment options we advocate.

Whether your practice is large or small, you deserve to be paid for your efforts ... for whatever treatment you are providing. In fact, the higher overhead associated with larger practices makes offering risk-free payment options even more important.

You say that a 97 percent collection rate cannot be achieved in a practice offering a discount for payment in full. Paradoxically, you say you achieve this rate and offer such a discount yourself! The reality is that if a patient takes advantage of your 8 percent courtesy, your collection rate does not drop to 92 percent. In fact, you`ve indeed collected 100 percent of the fee you agreed to when the case began. Offering these courtesies improves your collection rate; they never decrease your collection rate at all.

An acceptable accounts receivable ratio for a practice striving for higher profits should be between one to two times the office`s monthly production. The larger the production - such as an $80,000-per-month office - the more you should strive to reach a one-to-one ratio.

For a growing practice producing around $30,000, an acceptable amount of controlled accounts receivable would be more like two times production. A higher-production office allows you more choices, such as not accepting patients who can`t meet your financial terms - terms that are tighter than they were when you were in need of patients to fill your appointment book. Either way, if you`re going to offer any type of financing, several things need to be done in every office.

The first thing you need is a thorough "Financial Policy Options" brochure that explains the various payment options that apply to your office. Most offices don`t even have set financial policies, let alone a written policy to share with their patients.

Every new patient in our office receives a brochure that explains their options for meeting their financial obligations to our office. We offer an 8 percent discount for prepayment on services over $100. We accept MasterCard, Visa, and Discover with a 4 percent prepayment discount. We also make arrangements for our patients to receive a loan through Norwest Finance.

Now, do we deviate from these options? Yes, we do; but not like we used to when we were first building our practice. A typical example of our own in-office financing for an insurance patient who needs a crown would be to allow the patient to pay off his co-payment in three equal payments - one third at the time of treatment and then two equal payments a month apart. We seldom get burned with this arrangement.

Once you reach a certain level, then you can be tighter with your collection policies. Starting out, I think it is more important to concentrate on production than on collections. Get your production up and work collections later. The common mistake that I have seen many dentists make is to concentrate more on collections, which inadvertently controls and inhibits their production.

A dentist once boasted to me that he finally got his accounts receivable below $30,000. I then asked what his production numbers were, and he reluctantly admitted that his monthly production was under $30,000 also. This is a perfect case of a collections-based concept that is controlling the production levels in that practice.

It is much easier to institute policies to overcome collection problems than it is to condition yourself for increased production. That`s why it`s important to commit to extending a certain amount of credit to your patients just as many other businesses do. Why shouldn`t a dental office also have a "credit" department? Are we above that? Do we think it is beneath us to deal with credit-reporting companies and make collection calls?

We`re in business, so do what other successful businesses do - tackle it head on! If it means hiring an extra part-time staff member, then do so. Figure it out: How much more dentistry needs to be done to pay the increased salary? If your business systems are in place, that staff member will pay for himself or herself 10, 20, or 30 times over.

What is production? Working hard? Being busy? It`s not the gross that matters; it`s the net. Some of the highest-production offices we work with have the lowest receivables. By offering comfortable, flexible, and risk-free payment options, you can be busier than you ever thought possible - and you can produce with the confidence that you`ll be paid for all your hard work.

Anyone can fill a schedule and keep the doctor extremely busy. Big deal! It is foolhardy to "get production up and work collections later." With our systems, team members are responsible for and accountable to ensure payment from happy patients for all scheduled dental treatment.

When you believe that your payment options are sufficient to help your patients, then you can present these options confidently, and there`s no need to stray from the options. Offering the right payment options and not straying from them enables any practice to eliminate billing. If you don`t believe your payment options are sufficient, it`s time to change them!

We believe it is important to treat all of our patients the same way. We`re not sure what you mean by an "insurance patient," but we like to offer the same financing options to patients with insurance as we do to patients without insurance.

Although performing your own credit checks will avoid some payment disasters, a number of problems remain with any in-house financing. This payment option is hardly risk-free to your practice. Even the most successful financing companies that perform credit checks have collection problems, and patients will pay a bank far sooner than they will ever pay a dentist. If performing credit checks was all that was necessary to ensure payment, collection agencies wouldn`t exist and your staff wouldn`t be making any collection calls.

Lorraine worked at a jewelry store before she came into the dental practice. The jewelry store performed credit checks and offered in-house financing. The only way out of the overdue collection problems that were created was to sell these accounts at a steep discount to a collection company. The truly sad part of this story is that many of these accounts were with the good friends and neighbors of this family`s jewelry business. Offering in-house financing is costly, and there is simply no guarantee that the practice will ever be paid for its efforts.

We would hazard a guess that your patients are not taking full advantage of the outside financing you say you offer. Why would they when they can make payments to you instead? It sounds to us like your outside financing option is not being presented in its best light. Patients, after all, don`t want a "loan" ... they want a "payment plan." Do you like to eat "sushi" or would you prefer "cold, dead fish"? It all comes down to the presentation. Again, proper training (available in the very continuing-education courses you criticize) would increase your collections, your production, your case acceptance, and your satisfaction in practice.

The in-house financing you describe is especially convoluted. The patient is paying a copayment over three months instead of when treatment begins. The copayment is only an estimate to begin with, and you are offering a service to the patient by agreeing to a partial payment instead of receiving payment in full. We only can imagine the time you have to wait, not just for the insurance payment (if it comes), but also for the patient`s payments, especially when most estimates are inexact.

It may be true, in most cases, that you eventually get paid. But the occasional problem of nonpayment upsets the entire office, and it`s just not worth it. There`s a better way! You and your staff should not be spending your time performing credit checks and chasing down payments when other professionals are happy to do this job for you. Some of these companies will even approve patients you might not! Why spend time sending bills, tracking accounts, and waiting month after month for payment when you can get paid today?

You`re right when you say that you would guess most of our patients are not taking full advantage of the outside financing we offer. That`s because they don`t qualify. We do our "gradual treatment plan" so we can still keep these patients in our practice and be productive. I always appreciate learning new verbal skills, but I am not sure that will overturn a denied credit application, which happens to the majority of our applicants.

We`ve observed that if patients can qualify for these programs, many are capable of using a credit card to pay for their services, which is one of the primary options we offer. Most patients who don`t have a credit card usually don`t qualify for a dental loan anyway.

Another benefit of having a high accounts receivable, which is usually overlooked, is the fact that high accounts receivable provide a nice security net in case of a short-term disability. Most disability plans don`t pay anything until after 90 days. If an office has a cash-only practice, income immediately stops. On the other hand, if you have a significant amount in receivables, there is still a flow of income that can help meet your fixed overhead expenses.

In addition to a good financial brochure, you need thorough consultation forms that document all financial arrangements. Most offices do neither. Also, it`s helpful to use the credit-reporting services of a company like PCRS. Using a credit-reporting service can eliminate about 95 percent of your collection problems.

Of course, you have to be organized in sending out timely statements and following up with collection calls. Once you take care of business and institute these necessary systems in your office, watch what happens to your production and collection levels. Yes, your accounts receivable will go up, but when done properly, so will your profitability!

You`ve outlined many creative "advantages" to maintaining a high accounts receivable, but this response takes the cake. It`s the bomb! Simply put, there is no benefit in having money owed to you instead of having the money in your bank account and earning interest. What guarantee is there that this money owed to you will ever be collected? Certainly, very little, if any, of it will be collected if you`re not paying staff to work these accounts. If you retire or become disabled, some patients will move on to other dentists, and all of them will feel less of an incentive than ever to pay your dental bills.

Sock your money away in receivables if you wish, but we prefer to invest ours in our brokerage accounts! If you can count on your accounts receivable as a safety net, why do you write things off and give away your services? If receivables are a sure thing for dentists, why is the practice of "writing off" debts so commonplace in our profession, and why is the use of collection agencies so rampant?

OK, Lorraine and Pat. I`ll give you this one. Sure, I would rather have the money in the bank earning interest. This creative "advantage" is definitely the least of the benefits offered by my philosophy, but I still consider it a benefit knowing that payments will continue to come in if the office is closed for an extended period. On the other hand, though, any interest earned by having all the money in the bank with your scenario is greatly offset by the increased production and collection levels that are attained with my philosophy of treating more patients, which happens when you make dentistry affordable to these patients.

You have presented a very interesting opposing viewpoint to my accounts receivable philosophy, which I have enjoyed discussing. But, I think you would be hard-pressed to convince any of these high-volume offices - which do some in-office financing and are in the top 5 percent of our profession - that they should change the very philosophy that got them to that level in the first place. Hope to see you at one of your future meetings!

George Foreman says that he`s a champion every time he gets into the ring. We applaud your constant willingness to take on anyone and everyone in these pages, and we hope that the readers have benefited from this exchange of ideas.

We`re glad you have a large, successful practice. There are thousands of practices around the country producing as much as you do, but sending out a fraction of the number of bills. It`s not the bills that built your practice, Joe, and we hope you`ll investigate ways you can reduce them.

The reason your patients are not using outside financing is that neither you nor your staff believes it to be an attractive option, and you`d rather be the bank yourself. Of course, your acceptance rate is low when you send away only those patients whom you`ve already determined are poor credit risks. We applaud your phasing of treatment, and hope you`ll make a risk-free arrangement for the treatment the patient chooses. We look forward to seeing you again soon. And, we won`t forget to duck!

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