It’s estimated that the cost of dental care services in the US has increased by more than 60% over the last two decades. As a dentist or oral care professional, it’s normal to attempt to alleviate this phenomenon through all potential methods, including accounts receivable.
But, the costs of accounts receivable in dental practices have also skyrocketed over the last few years. This means that you have to keep a close eye on this area of your practice to avoid an unforeseen crisis later on.
Having a certain number of customers issuing monthly installments is a great idea. That said, dental professionals need to avoid spending too much on this income channel if they want to have the highest chances of success.
In this article, we’ll go over the costs of having dental office accounts receivable and provide 7 tops to reduce these charges across the board.
Costs of Carrying Accounts Receivable in Your Practice
Before going over the cost of carrying accounts receivable in your dental practice, it’s important to ensure that we’re on the same page.
Accounts receivable, or ARs, occur when you establish an in-house financing program. In these cases, patients usually pay for a percentage of the cost of the treatment up front. The remaining balance is paid in a set number of installments. This balance that’s owed to the dental practice is known as the accounts receivable.
Now, having accounts receivable may not require you to work with a new service provider, but it’s certainly not free. Here are some of the costs associated with having accounts receivable.
The first out-of-pocket costs associated with offering to finance are office or fiscal expenses. Most practices have to invest in additional paper, toner, postage and invoicing software in order to provide in-house financing. While they may seem small, these charges can add up, especially when you factor in small balances that practices spend more money trying to recover.
Loss of Interest Income
The vast majority of dentists avoid charging interest on balances over 30 days because it seems counterintuitive. This can result in major financial loss in the form of uncharged income.
However, it’s important to remember that other necessary providers like banks and mortgage brokers also charge interest in order to keep their businesses afloat. There’s also a major chance that most customers won’t notice or mind that you’ve started charging interest, so it’s never too late to make the adjustment.
While gradual, the trickle-down effect of financial inflation can significantly reduce your accounts receivable income.
Because of how inflation works, this doesn’t mean that you’ll receive less money. But, by the time you receive all of the payment, the money you have will hold less value because everything around you will be more expensive than when you provided the service.
Cost of Opportunity
In this context, the cost of opportunity expenses encompass any additional charge that comes as a result of your in-house financial plan. Office materials are definitely a good example of opportunity costs, but these expenses can also include:
- Reduction in employee productivity due to increased workload
- Lack of availability for full-paying customers
- Lost income due to unpaid balances
How Long Should It Take for a Patient to Pay for Treatment?
Many dentists amass a huge AR balance before they realize it because they don’t know how long it should take to get paid for the services they provide.
As a general rule of thumb, you want your AR patients to issue their last installment no later than 45 days after the service was provided. This means that you should be collecting the last installment around 7 to 8 weeks after the procedure.
Make sure to include the time limit in the credit or financing agreement. Including this data and making sure that your patients know and understand that it’s a clause in the agreement will increase your chances of getting paid without having to collect proactively.
7 Tips to Help Reduce Accounts Receivable in Your Dental Practice
There is no doubt that AR charges can become a solid revenue stream, but these delayed charges shouldn’t make up your entire cash flow. If you rely too heavily on this type of payment, you’ll run into liquidity problems. For example, having to cover your staff salary while only receiving partial payments.
Here are some techniques you can implement to reduce your reliance on accounts receivable.
1. Create Insurance Estimates that Are on the Higher End
Dentists have to go over the insurance estimates before each patient can accept treatment. During this process, it’s best for you to create higher insurance estimates to help cover your back, even if this will represent a bit of additional work down the stretch. After all, it’s better to send out refunds than collections notices.
2. Offer a Discount for Patients that Pre-Pay During the Booking
A great way to help patients gain access to quality dental care without opting for ARs is to offer discounts that pre-pay when they make their bookings.
Each dentist knows her or his practice best. So, you need to look at your requirements and figure out how much of a discount you can provide while still remaining profitable.
3. Instruct Your Team to Ask for Full Payment
Dentistry practices have been regarded as a pillar of the community for decades. It’s normal for your team to relate to the people that visit your practice and offer financing to each one of them.
But, you should control the volume of ARs and instruct your staff to request full payments during checkout by default. If someone asks about financing plans, then your team can tell this person about financing opportunities.
4. Offer Other Financing Alternatives
How much does a dental practice cost in terms of administrative expenses? The answer to that question is a lot higher whenever the costs include in-house financing.
The good news is that you can actually offer third-party financing to anyone that schedules an appointment or walks into your practice. You’ll need to contact a few providers that serve the dentistry industry, but there are plenty of financial institutions that can help you set up this type of balance installments for your practice.
5. Set Up Short Billing Cycles
Instead of canceling ARs altogether, many practices choose to set up shorter billing cycles. This can increase your practice profitability and reduce your collection rate by simply setting up closer deadlines. The idea is to increase awareness a little bit to make sure that the debt to your practice becomes a priority.
6. Send Reminders Through Your Customers’ Favorite Channels
Most people have a significant number of bills, most of which arrive via email, regular mail, or text message. You should use these channels to your advantage and send out reminders to individuals who have overdue or upcoming charges. This can reduce the money owed to you and increase the number of people paying on time.
7. Personalize Your Patient Experience
One of the keys to good practice management in the context of accounts receivable is the personalization of the patient experience. Whether you’re booking a new appointment, giving a patient report, or making a collection call, ask yourself:
- Has the patient developed a rapport with a specific team member?
- Are there any ideal hours for contacting this patient?
- Has this patient been in collections in the past?
You should be able to tailor reach interaction by asking these types of questions before you contact each client.
Ready to Improve the Performance of Your Practice?
Diversifying your earnings through accounts receivable is not a bad idea by any stretch, but you need to strike a balance to be successful. We hope that the article above gives you a better understanding of accounts receivable and what you need to do to make them work for your practice.