The Great Receivables Debate!

Oct. 1, 2000
It sure is enticing to heed the advice of those who advocate a "zero accounts receivable, cash-only practice." Just think about it - no more costly statements, extra labor, postage, collection calls, or bad debt write-offs. I recently attended a seminar where it was explained how detrimental it can be to carry accounts receivable. The speaker used an example of a $500,000 practice with an accounts receivable of $75,000.


Joe Steven Jr., DDS


Lorraine Hollett and

Patrick Wahl, DMD, MBA

Is the accounts receivable factor a practice builder or a practice killer?

It sure is enticing to heed the advice of those who advocate a "zero accounts receivable, cash-only practice." Just think about it - no more costly statements, extra labor, postage, collection calls, or bad debt write-offs. I recently attended a seminar where it was explained how detrimental it can be to carry accounts receivable. The speaker used an example of a $500,000 practice with an accounts receivable of $75,000.

He subtracted the cost of labor, the cost of statements, postage, depreciation, and the inability to collect it all, and arrived at a figure of only about $15,000 that could be netted out of the $75,000. For a minute there, he had me going. Then, I quickly wondered just how much of that $500,000 would have been accepted by the patients if the office demanded payment upfront. I also had serious doubts about the figures that he came up with to justify his conclusions.

Joe, we don`t know whose seminar you attended (it wasn`t one of ours), but you certainly do not need to "demand payment upfront" in order to eliminate billing. In fact, there are all kinds of options today that allow the patient to "pay it out" without your practice sending any bills.

Payment should never be demanded from any patient. Instead, the role of the business staff is to help patients find a comfortable way to afford the treatment they need or want without resulting in any billing. Certainly, no staff member should ever ask for payment "upfront." Patients are paying for the services they receive. So, ask for payment "in full," payment "at your visit," or payment "when your treatment begins."

We`re not advocating a "cash-only" practice when we talk about eliminating billing. On the contrary, we help dentists and teams across the country develop a variety of risk-free payment options that encourage case acceptance while guaranteeing full payment. Anybody can get patients to pay; we like to be paid by raving fans!

Obviously, we both know that offices shouldn`t be "demanding payment upfront," and you don`t need to if you discuss financial options before treatment. When we do this, we get paid by a lot more "raving fans" who appreciate us for making their dentistry affordable for them.

Unfortunately, in my "bread and butter" general practice, about 80 percent of our patient applications for loans are denied. That`s our indication to offer these patients our financial option called the "gradual treatment plan." This allows the patient to receive treatment in phases, according to a very limited credit line. If we didn`t do that, we wouldn`t be doing much dentistry.

Our accounts receivable are around $135,000 right now. Sounds bad, huh? But the good news is that, although the amount fluctuates, it really hasn`t gone up over the past several years. That`s the key: keeping accounts receivable at a certain level. If they stay at a controlled level, then you always should be collecting around 100 percent.

Last year, we collected 97 percent on $1.2 million in our solo-doctor practice. We didn`t collect 100 percent because of two factors: insurance write-offs and bad debts that we were unable to collect. No, we didn`t collect it all, but I`ll settle for 97 percent collections any day! I don`t pretend to know the exact amount of reduced production we would have had if we did not extend credit. But, I would guesstimate it would be around $300,000 to $400,000 worth of dentistry that would not have been done if we had a cash-only practice. I would rather have 97 percent of $1,200,000 instead of 100 percent of $800,000.

Joe, case acceptance goes up - not down - with professionally explained, convenient, and affordable payment options. The key is to explain what we do in terms of the benefits to the patient. Banks exist so you don`t have to be one. When you outsource your financing to other professionals, you can do what you do best, and you`ll collect your money immediately without billing or collection calls.

While you may eventually collect 97 percent of your original production after months of dunning your patients, you lose much more than just 3 percent in the deal. Forget about the wasted time and energy producing the uncollectible treatment. Forget about all the expense associated with this production (staff time, supplies, etc.). Forget even about the money wasted on fruitless and morale-draining collection calls.

How about the patients who won`t be returning or won`t be referring their friends and families? Their bad-mouthing of you is a terrible reflection upon your practice`s reputation in your community, and there is a better way. It begins by recognizing that you provide a valuable service that patients are happy to pay for.

Did you know that 87 percent of malpractice cases involve patients who owe money? It`s human nature. Many patients won`t even remember the exceptional service they may have received in your office when they receive a bill for this treatment months later.

How would you like to collect 100 percent of $1,400,000? The good news is you can increase production without sending bills, and your practice need not be "cash-only." Thousands of practices are eliminating billing, while providing a wide array of comfortable payment options for their grateful patients. Stop devaluing what you do. Once you learn to make payment arrangements properly, your patients won`t just pay you; they`ll sing your praises as you take their money.

In the land of Oz, perhaps, but here in Wichita, Kan., case acceptance would plummet if we didn`t offer some "controlled" credit to our patients. Many of our patients wouldn`t be able to have their dentistry done if we didn`t take our time and work with them by extending a little credit. When done properly, we get paid. Offices get in trouble when they don`t properly discuss finances and don`t put it in writing.

Most dentists consider a 97 percent collection rate very acceptable. Every loan program that I`ve seen has the dentist writing off up to 10 percent in order to get his or her money prior to treatment. Unless I`m missing something, I don`t see how you can beat 97 percent collections when writing off prepayment discounts.

In January, Roxann, our treatment coordinator, came to me with an interesting question. She asked, "If the reason we quit being a Blue Cross/Blue Shield provider was because we were writing off so much, then why are we still offering these loans, since we`re also taking a write-off on them?" She was right, so we`re not pushing these loan programs as much now. Plus, 80 percent of our patients are turned down for these programs.

You ask how many cases we lose because of resentment and embarrassment from patients who already owe us money. When financial arrangements are made prior to treatment, our case acceptance goes up, and we avoid any resentment caused by unorganized financial arrangements. Why are you assuming patients would bad-mouth us? The scenario you`re describing does happen, once again, when financial arrangements are not made prior to treatment. But we generate more patient referrals from patients who appreciate and love us for making their dentistry affordable.

Joe, it doesn`t take a detective to figure out why 80 percent of your patients are denied when applying for outside financing. You admit that you emphasize your in-house financing and hardly mention any outside option. In other words, you refer to these companies only those patients to whom you wouldn`t extend credit yourself! Isn`t it great that these companies approve 20 percent of the patients you wouldn`t? Refer all your patients who want to "pay it out" to these companies and watch your approval rate skyrocket.

You agreed with Roxann that it makes no more sense to pay a percentage to a finance company than it does to work with a managed-care plan. We would ask, then, why you offer your patients an 8 percent courtesy discount for payment in full? You offer that courtesy because you understand the benefits of payment in full when the treatment begins.

With the courtesy discount you offer and with the finance company as well, you set your own fee; your fee is not dictated by an insurance company. You provide comprehensive care not subject to insurance limitations. You are paid immediately and do not have to waste expensive time waiting on and chasing down payment. You`re not losing any money with a courtesy discount for full payment or with a percentage given to an outside financing company when you keep your fees healthy. Think about it - it makes sense!

I`ve heard that it costs about $15 to send out a single statement when you calculate all the incidentals involved. I`ve never been able to come up with anything close to that figure. We mail out (hold on to your hats!) around 400 statements each month. Sounds terrible, doesn`t it? Especially when you hear many of our leaders talking about "statementless" practices.

Sure, the "statementless" concept sounds like the only way to go. Unfortunately, it does not work for the majority of offices. I know very few high-production and high-profitability offices that have a low or zero accounts receivable. Without a doubt, I believe it is possible to have a highly successful cash-only practice - I just believe these practices are very rare. I have always tried to present principles that will work for the majority of dentists.

Let`s look at the real costs associated with sending this many statements out. Postage on 400 statements is $132. It takes Roxann about four hours to print, fold (we invested in an inexpensive folding machine), stuff, and mail them. She does this during a normal workday, while performing her regular business-office duties. Monitoring collections and making collection calls are done throughout a normal workweek, right along with all the other miscellaneous duties that are required in the business office.

I don`t think it`s necessary to calculate any extra labor costs involved in these discussions, since, in most offices, you`re not adding any additional payroll to complete these duties. My payroll would not decrease if we were not sending out any statements.

The cost of our statements and envelopes is 8¢ each (400 x 8¢ = $32). Our real costs are, therefore, under $200, which comes to less than 50¢ per statement mailed. One thing that many critics of statements fail to mention is the interest that can be earned on accounts receivable. Last month, we charged out $1,085 in interest alone. This more than offsets any real costs associated with mailing out statements. Interest income allows extremely efficient offices to collect over 100 percent of production.

Joe, you say that Roxann spends four hours each month sending bills. You don`t account for the time that she and your other staff spend posting payments, sending out follow-up bills, and answering the phone. Do you know what day your phone is busiest? It`s the day after you send bills to 400 of your patients, many of whom are upset and call you with their questions.

What`s most perplexing is that you think the four hours that Roxann spends printing and stuffing are "free," because she is on the payroll anyway. Is this the thinking that you believe makes up a "$1,000,000 Staff" (as mentioned in your seminar)? It`s certainly not the behavior I`d expect in any "extremely efficient" office. An efficient office with a $1,000,000 staff would pay its team members to provide service to and spend time with its patients - not to stuff envelopes or make collection calls.

The dentists and teams we work with who have eliminated billing are thrilled now to spend their valuable time providing exceptional dentistry and five-star service. We promote spending quality time with patients, instilling in them the value of recommended treatment, and "wowing" patients with the latest advances that dentistry has to offer.

The principles we advocate have been proven to work in every type of practice. All dentists and teams can do this. As far as the pittance you are supposedly earning by charging your patients interest, who cares?

Once team members are liberated from the collections drudgery, they can happily spend their time growing the practice and enhancing the business. Have you ever asked Roxann how she feels about being your in-house collections agent? Is it fun? Does her love of dentistry grow with each collection call? Does she find it frustrating having to accept nonpayment and write-offs?

Roxann really doesn`t have it that bad because we have good systems in place to eliminate many of the problems you describe. You`re picking one office function to outsource. You also can outsource your insurance-billing duties and other responsibilities in the office, but we don`t. Why do we pick that one area? It`s not all that difficult to manage this area when you`re organized and have good systems. Does Roxann like collection calls? No! She also doesn`t like to deal with insurance companies. Actually, I think she would prefer to make collection calls instead of fighting with insurance companies. Extending credit is part of the great service we offer in our five-star office.

We often hear that you can`t walk into a McDonald`s or a grocery store and simply say, "Bill me." It is suggested that we shouldn`t allow patients to do the same at our offices. There`s a world of difference between a dental office and those examples. We also hear that we should tell our patients something like: "We have an agreement with the banker that if they won`t fix teeth, we won`t go into the banking business." Although these cliches are effective at making a point, I`m not sure it is a point that`s in the best interest for the majority of offices.

I always have felt that for a "starting" or "starving" dentist, the office should extend a certain amount of controlled credit. The key here is controlled. Please don`t think for a second that I`m talking about wild, abandoned free credit for everyone. You have to have firm, written policies that are presented to the patients properly.

Some people believe our services are in competition with big-screen TVs, motor homes, new cars, vacations, etc. I don`t think that`s our competition at all. We`re not even on the same playing field. All those other things are fun things that we all enjoy and look forward to having. The large majority of the public doesn`t look at dentistry in the same way as those other items. Therefore, we have to make it as affordable as possible to get them to accept our proposed treatments.

Most people don`t buy a new car or even a refrigerator with cash upfront. Most businesses understand this, and adjust their operations accordingly. Car dealerships have entire multi-staffed credit departments that do nothing but arrange financing for their customers. Appliance businesses and many others do the same thing.

These are things that people really want and can`t wait to have. Also, these are items that don`t require shots, drilling, multiple appointments, and discomfort. Sugarcoat dentistry as you may, but we`re not in the same league as these other consumer "wants." Of course, we can improve on this a little by converting our patients from a "need-based" concept to a "want-based" situation. But, let`s face it, this is extremely difficult to do with most patients in the average office.

Once you understand this, you can formulate office policies to help accommodate more patients. Delegate staff members to discuss finances with patients with the use of proper forms. Obtain the patient`s signature who is making a financial commitment to your office. Years ago, my front-office staff told me that when it`s in writing, it gets collected! That`s the one thing that most offices fail to do and why they are inclined to go statement-free - they`ve been burned too many times!

"Starting" dentists have an incredible opportunity to do things right. It is much easier to do things right from the start than it is to change ingrained habits and systems. As consultants, we spend most of our time helping practices make difficult changes. We hear from dentists and staff that "our patients are used to doing things this way." Dentists and staff themselves have as much difficulty with change as patients do, and many readers of this article are no doubt telling themselves, "I wish I had done things differently in the beginning."

We get calls every day from young dentists who have quickly buried themselves in uncollectible accounts by extending "controlled credit." These young dentists can outsource their financing just as easily as more established practices, and they can build a practice of happy patients, not resentful ones.

You mentioned the management lessons we can learn from McDonald`s. One of McDonald`s greatest successes is that the company has done a great job of training us. We all know exactly what`s expected of us and exactly what to do when we go to McDonald`s. We know where to stand, what to ask for, and when we`re supposed to pay. Our patients also behave how we train them to behave. It`s easier to train them from the beginning than it is to retrain them years later.

"Starving" dentists would do well to ignore your message. Dentists struggle when their fees are too low and when they are not collecting their fees properly. Successful dentists project an image of success to their patients, and people find this image appealing. Several companies today are eager to extend credit to your patients for long terms and small payments.

You`d be hard-pressed to match the terms that some of these companies offer with your "controlled" extended credit. Do you allow patients to pay you over five years like some of these companies do? Better yet, the payment from these companies is guaranteed because these plans are "nonrecourse," so you get paid while increasing case acceptance. Talk about helping a young dentist grow his or her practice ... and the new dentist gets paid without being the bank!

The grass is not greener over at the car lot or at the appliance store. Contrary to your gloomy message for dentists, many people drive their cars "into the ground" before replacing them. And nobody thinks of replacing a washer or dryer until it breaks. All professions and industries must instill perceived value in their customers` minds. Dentistry is a tremendous service, and never more so than today.

Wide-screen televisions, RVs, new cars, and vacations are absolutely, positively our competition. Patients are people. People have money. It is up to us to help our patients decide where and when they will spend their money. You say that most of the public doesn`t consider a healthy, attractive mouth to be as important or as desirable as the other purchases you mention. Our question is, ODo you?O

Finally, we disagree that the key to collecting payment is to have written agreements. If that were true, then you would easily collect everything you produce. Instead, you admit to only a 97 percent collection rate over time, despite all of your written agreements, pesky collection calls, and those funky past-due notices with the Day-Glo stickers. We think the key to collecting payment is to establish clear, comfortable verbal agreements with your patients, offering them convenient and affordable payment options that are risk-free to your practice. The entire process of making payment arrangements begins and ends with a verbal agreement, whether or not you have written backup.

A signed agreement to make payments to your office means little. Oh, the first check usually comes on time, and the second one is just a little late. The third one sometimes doesn?t come at all. Coupon books just don?t work, and there?s no need for them with the modern, nonrecourse financing available to our patients today. If you?ve had trouble farming out your financing in the past, we?d love to show you and your staff how to make it work with the right systems and verbal skills.

Round 2 will appear in the November issue of Dental Economics.

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