Cash flow problem equals no “Payable” in Accounts Payable! What’s a dentist to do?
Most businesses have formal accounts receivable policies that dictate when to bill, how much to bill and when to collect. Unfortunately, not all businesses enforce those policies effectively – or even set up the correct process at all. This is very true of many dental practices. It often comes down to culture. Dentistry is healthcare and is nurturing thus offering discounts or ignoring payment terms if it means keeping the patient happy. However, if management does not have a focus on working capital, no one will. The careless way of not collecting and you end up unintentionally providing customers with free financing.
Some may argue this is no big deal, but the truth isn’t so simple. If the practice needs to borrow money to meet payroll because patients and insurance companies are paying late, it could incur losses on the financing charges alone. Even if that’s not the case, carrying overdue accounts receivable still has a cost. It puts you on a cash flow tightrope. Rather than having free capital to invest in growth opportunities, buy new equipment or introduce new products, your money is tied up on your balance sheet.
Weak Receivables Policy
While no company intends to adopt weak accounts receivable policies, lack of planning, poor enforcement or a failure to focus on the function can result unfortunate bottom line numbers. These often arise when companies:
- Fail to follow up with patient and or account guarantors in a timely manner when payments are past due. Patient’s don’t know what is expected of them so they postpone payment.
- Allow dental sales reps or your dental supply person to override budget limits – and end up with years worth of supplies yet you can’t pay the bill
- Neglect to provide staff with appropriate training on how to deal with late paying patients such as preventing it with a written financial agreement
- Don’t pay sufficient attention to the accuracy of their vendors statements, invoices or credit terms