Accounts receivable is the money that is owed to a business after it has sold goods or services on credit. The status quo shows a rise in operating costs and an almost proportional increase in the number of patients with high-deductible health plans. Due to this, managing AR (Accounts Receivable) has become a herculean task leading to the mounting of the receivables, which is the leading cause of reduced cash flow in a practice. This is commonplace in most dental practices and their revenue cycle has been witnessing a steady decline due to it. It thus becomes very crucial to manage the accounts receivables efficiently to ensure the practice benefits from timely payments, happy client relationships, and high liquidity for your practice. There are multiple complexities involved with accounts receivable; including its management, the process of recording in financial statements, credit period, etc. Today we shall go over its management aspect and the ways in which the entire process can be improved.
What Is Accounts Receivable Management and Why Is It Important?
Accounts receivable (AR) management is the process of obtaining customer payment within a given time period. Practices often make use of AR management to ensure the proper tracking and management of every step involved in collecting payment after the patient has undergone a procedure. It is a vital component for any practice for building liquidity and profitability and avoiding bad debts and there is much more to it than simply receiving payment on a bill. Accounts receivable management is not only about reminding the customers and collecting the money on time. It also involves the identification of the various reasons for any unforeseen delays and effectively finding a solution to those issues.
A successful accounts receivable management process helps practices maintain a healthy cash flow, which is essential for avoiding shortages or, in some cases, even bankruptcy. It is a known fact that a practice’s future revenue is based on incoming cash and hence avoiding delays in customer payments is paramount for the practice’s growth. Practices ought to put in time and effort to effectively manage their accounts to increase their working capital and, ultimately, pay their own bills. If in the worst-case scenario, a practice fails to provide proper, timely billing or collect patient payments, the subsequent limited cash flow can render them unable to cover their own operating costs.
It is also important to understand that the longer an account goes uncollected, the greater the loss of revenue, and the greater will be the amount of resources the practice would need to allocate for collection efforts. The best way to resolve this issue is by including accounts receivable timeline, with the days or months outstanding in a monthly report indicating the same. Keeping a lookout on the timeframe of the balances will give the practice a better idea about:
- The age of the insurance claims
- The number of times a statement gets sent to patients
- Number of days gone by since the last payment was made
- Days remaining for filing the claims within the timely filing limit.
- Number of claims that did not go through
Tips To Improve Your Accounts Receivable Management
- Analysis of payer collections :
It is very important to identify and list out the various insurance companies that are slower to pay the practice along with the ones that have a higher volume of denials.
- Assessment of patient collections :
Practice must essentially collect all co-payments, advance payments, and outstanding payments at the time of service delivery. Patients should be made aware of the payment process prior to or at the time of service.
- Frequency calculation of errors that delay collections :
Recurring errors in regard to patient data collection, coding, billing, or other processes should all be diligently noted. These are solid pointers to the areas that need change/ improvement.
- Leveraging the medical billing program :
Suitable software should be made use of which would notify the practice staff when accounts are past their due so that appropriate follow-up steps can be taken.
- Staff Involvement :
A team should be designated to track specific payers. In addition to that, regular meetings should be conducted to discuss Accounts Receivable status and problem areas, and identify effective collection techniques that work.
AR management essentially includes creating and following certain standards for your dental practice to facilitate efficient billing and payment for your clients. Following these allow your practice to get paid on time and avoid late payments. When done efficiently, you will not only receive timely payments but will also have happy client relationships and high liquidity for your business. Poor management, on the other hand, can lead to wasted staff time, accounting errors, lost revenue, and poor cash flow. The goal should be effective accounts receivable management in order to optimize billing, payments, and collections processes to minimize the time taken to get paid and eliminate any potential risk of bad debt.