Dental Finances: Accounts Receivable (A/R)

Finances: Accounts Receivable

• Dentistry is a business and requires strong financial management.
• Dental offices must keep accurate, complete, and up-to-date financial records.
• Financial and clinical records should be maintained separately.
• Maintaining proper financial records saves time, reduces lost revenue, and protects against legal action.
• Bookkeeping involves recording all financial transactions.
• The two types of bookkeeping are accounts receivable and accounts payable.

Accounts Receivable (A/R) vs. Accounts Payable (A/P)

• Accounts receivable (A/R) represents money owed to the dental practice.
• Accounts payable (A/P) constitutes all financial obligations or money owed by the dentist, i.e. the money the dental practice owes, expenses.

Accounts Receivable Details

• A/R captures all charges or debits for services, payments, and outstanding balances owed to the practice.
• Ledgers provide accurate and complete records of client charges, payments, and account balances.
• Computerized systems record and calculate A/R transactions.
• Every client has a financial page, e.g., a ledger.
• A/R, represents services already provided and warrants timely compensation to the dental office.
• Uncontrolled A/R negatively impacts cash flow.

Computerized Bookkeeping Systems

• These systems allow a single entry to be transferred to financial records, client statements, insurance forms, and management reports.
• They involve posting transactions with clinical data, generating walkout statements and insurance claim forms.
• Regular data backups are essential to prevent information loss.
• A client receipt serves 2 functions:
  • Indicate fees for services rendered and payments made.
  • Act as a walkout statement for future payments.

Establishing Financial Arrangements

• Involves creating a written financial policy.
• Such policy must conform to community standards, reflect the dentist's attitude toward client welfare, represent sound business concepts, be presented in writing, offer client options, and be consistently followed.

Forms of Payment

• Clients are encouraged to pay at the time of treatment.
• Immediate cash flow is the most efficient payment form.
• Clients should be asked directly for payment, if they have made the payment at the time a reciept must be given and entered to the clients account.
• Payment options include personal checks, post-dated checks, credit cards, debit cards/interact, and cash.
• Clients can choose various payment options, make small payments, or have contracts with interest charges.
• Clients may assign insurance benefits to the office, requiring the office to await payment from the insurance company (3rd party payments).

Monthly Billing/Statements

• Client account statements/bills are mailed monthly, requesting payment of outstanding balances either fully, partially, or minimums.
• Financial arrangements must be made before treatment, with terms clearly stated and agreed upon by both parties.
• Written confirmation of financial details is necessary and should be filed.

Recording of Payments

• All payments, whether in person or by mail, require prompt recording in the bookkeeping system under the client's account.
• Payments from insurance companies (third-party payments) need notation regarding the payment source in the financial records.
• Payment entries are permanent business transactions in permanent client records.

Statements

• Statements show the charges, payments, and balances for accounts for the month.
• Statements are usually sent once a month.
• They are sent on the same day each month (1st, 15th, or 30th).
• Staggered mailing by alphabet for large practices to maintain better cash flow.
• Statements need to include the transaction date, client's name, list of services and fees, current total balance, terms for interest charges, and a return envelope for payment.
• Statements may also be created as a walk-out statement during service to avoid future statements.
• Some practices require payment the day of service to increase cash flow and avoid sending statements.
• Special messages or aging columns may be added to computer-generated statements.
• Cycle billing involves sending statements or bills on a regular, 30-day cycle.
• Some practices send all statements on the same day of the month with a due date for prompt payment.
• Four stage billing cycle:
  • Stage 1 involves a gentle reminder between 0-30 days past due.
  • Stage 2 involves a second reminder between 30-60 days.
  • Stage 3 declares past due between 60-90 days.
  • Stage 4 is the final notice over 90 days.

Special Circumstances/Problems

• Advance payments, or credit balances, occur when a payment is made in advance.
• NSF (non-sufficient funds) checks can be resubmitted, but may incur a fee from the bank.
• Collection agency fees become a debit on the account.
• Professional courtesy amounts to a credit on an account.

Collection Procedures

• Collections are an undesirable but crucial responsibility.
• Only a small percentage of patients cause payment problems.
• Collection procedures involve:
  • Telephone calls
  • Letters
  • Collection agency actions

Collection Letters Sequence

• Reminder is sent with a notice on a statement.
• Inquiry/discussion involves personal office contact and a telephone call with the patient.
• Urgency emphasizes the need for payment through a more urgent call or letter.
• Ultimatum provides notice of impending legal action through an agency, attorney, or court; this includes a deadline, sent by certified mail with a return receipt requested.
• Follow through on it or you are liable because you are being discriminatory in comparison with other patients

Telephone as a Collection Instrument

• It provides personal contact with the client.
• Privacy is mandatory in this form of collection.

Collection Agency

• Used if the patient did not respond to previous collection attempts.
• Ensure the chosen collection agency is reputable and adheres to provincial guidelines.
• Data sent to collection agencies contains debtor's name, home and business address, phone number,amount owed, and date of service.
• The dentist must notify the collection agency, when paid by the patient and is billed 35–50% of the balance.
• Agencies keep a percentage and issue a check to the dentist when paid by the client.
• Once sent to collection, no further office collection activity is necessary.

Writing off Outstanding Accounts

• The dentist or office manager determines if pursuing an account costs more than it yields.
• Aging accounts receivable may not be worth the dental staff's time and effort anymore.
• Actions to write off a bad debt require a prior discussion with the dentist.