DENTAL PRACTICE ARTICLES

Ten Steps to Improve Cash Flow
Sandie Baillargeon Posted on August 18th, 2013

Why is cash flow so important to dental offices?  You need to have money in the bank to pay the bills, including payroll.   Collecting the fees for the services that you have rendered must be done at the time of service.  After all, you have performed the service  and made an irreversible change to your patient’s tooth or teeth.  You cannot repossess the dental work if the patient refuses to pay.  There are no businesses in the world that provide service and don’t expect to be paid, except for dentistry.   Once your patients get into the habit of leaving your office without paying or paying late, it can be almost impossible to get them to start paying on time. 

There are three basic ways to improve your cash flow :

1.  Speed up cash receipts from patients

2.  Slow down cash payments to vendors

3.  Reduce expenses

Step 1 Require immediate payment (or commitment to pay)  

It doesn’t matter as much about how much you bill – it does matter how much you collect. Dentistry is expensive to many patients, so have a policy where every person either pays or has a commitment to pay through financial arrangements. The ideal situation from a cash flow standpoint is to require payment at the time of service.  When was the last time you have been billed by a restaurant, or a dry cleaner, or a post office or a hairdresser and didn’t pay at the time of service?

Step 2 – Encourage the use of debit or credit cards .

You get your money more quickly, the patient is not subject to interest on their credit card since they will be reimbursed within 30 days. You don’t have to worry about the co-payment because you have already collected it. The merchant fees to credit card companies is minimal but worth it to improve your cash flow and it is a business expense.

Step 3  Manage the accounts payable.

Always pay your bills on time, but don’t pay bills sooner than you have to.  Every invoice that you receive  has a due date. If your vendor has agreed to finance your purchase for 30 days for free, then take full advantage of that. You hang on to your cash longer, which has a positive effect on cash flow.

Step 4 – Make sure that your invoices are correct .

 A lot of companies make mistakes. Make sure that your incoming invoices are correct . Ensure that your outgoing invoices (account statements) are also correct.  If your account statements are incorrect then you are providing an opportunity for the patient to delay payment to you.

Step 5 – Invoice upon delivery

If the patient does not pay the full fee at the time of service; send an invoice immediately, that day.   If you did the dentistry at the beginning of a month and you don’t send out account statements until the end of the month that negatively affects cash flow.

Step 6 – Bill more often. 

When prioritizing their outgoing bill payments, patients have a tendency to think that paying the dentist is a low priority (when compared to gas, hydro, etc.).  They sometimes assume that the dentist is rich and can afford to do without the patient’s money. Stay on top of your accounts receivable even if you have sent a statement at the time of service.  If the patient has not paid their bill in 30 days, send an account statements and put on the dunning message “Payment is due upon receipt.”. Identify your late payers and take action immediately to get them to pay.  Keep pushing, nicely but firmly, until payment is made. 

Step 7 – Give an incentive for prompt payment .

If a patient wishes to prepay in full for a crown or a bridge or implant and not use a credit card, you may wish to offer a professional courtesy to thank the patient for paying in advance. The professional courtesy should be no more than 5%, which is approximately the cost of keeping it on your accounts receivable.  If the patient does wish to prepay by using their credit card, then you may still offer a professional courtesy, but reduce the amount to 2 or 3%.  Write this into your financial policy and discuss it with your patient. Remember, do not call it a discount!  If your patients think that you discount your services, they think that you were overcharging all along. 

Step 8 – Budget Your Cash Flow

A cash budget that has sufficient cash flow can help you take advantage of business opportunities and avoid nasty surprises.  It is an estimate of your cash position for a particular period of time.  By estimating your cash inflows and outflows (expenses) during a given period you can project your cash flow needs.  Schedule your payments to vendors so that they are made when there is plenty of cash to spare.

Step 9 – Manage your expenses  

Only spend money when you absolutely have to. With the exception of consumables, i.e. dental sundries, try to make capital items last as long as possible.  Implement an inventory tracking system that will help prevent over ordering and waste.  If you are in need of a large capital expenditure item, you may wish to defer that expense until you have cash in hand – perhaps from a large cosmetic case that you are expecting payment for.

Step 10 – Manage Your Accounts Receivable. 

If you are not keeping an eye on your accounts receivable you are missing a terrific opportunity to improve your cash flow. No matter how much you love your patients, some of them don’t understand how important it is to you that they pay their bills on time. Always keep track of your accounts receivable and don’t allow accounts to go to 60 or 90 days. If any accounts do go to 60 days, send statements more frequently, i.e. every two weeks, then every week, followed with a telephone call.  Keep in mind if the patient has been reimbursed by the insurance company, or even if the insurance company pays you directly, that payment will have been received within 30 days, with the exception of social services programs.  If your patient has not paid you in two months or more, they don’t have any intention of paying you.  

 Improving your cash flow will improve the financial health of your practice.  Dentistry is a relationship business and it is important to have a healthy financial relationship with your patients so there are no surprises and awkwardness. The front desk coordinator must be confident in her ability to expect payment at the time of service and talk to patients about making comfortable financial arrangements.  Dentists also have bills to pay and need to support their families and staff.  If you wish to receive a sample of a Financial Policy and Procedure, please send an email to sandie@dentalofficeconsulting.com with the subject line Financial Policy. 

Author: Sandie Baillargeon

 

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