What Happens When Your A/R is Poorly Managed?
Doctor, have you ever reviewed the report that shows all the patients and insurance companies that owe you money? And if you have, do you really know what you are looking for? For example:
Allow me to be more specific. There is a software program that allows you to assign a designation to a patient and/or the account. It can be a symbol, number or letter. By simply assigning this designation to an account, the Accounts Receivables (or Aging Report) can be generated without including the accounts with this designation. As a result, unless the report is printed to include “all designations”, you are not looking at the true balances that are owed the practice.
Other softwares allow you to assign “billing types” to accounts. The Aging Report can be generated to not include specific billing types. As a result, not all the accounts are listed. Another software program has the option to set up various Account Types such as Bad Debt, Collections, Cash Only, etc. The Accounts Receivables Report can then be generated to either include or exclude these account types; therefore, not revealing all the accounts that owe money to your practice.
Why Hide Accounts Anyway?
Another reason I hear is that doctors don’t want to write the uncollectible accounts off so they are “hidden” to never be seen again. Why is this so bad? Because you are not realizing the actual “net” production of your practice on a monthly or annual basis. The work was performed, no money or some money was collected and you are not seeing the uncollectible adjustment to reflect the uncollected debt.
Industry standards for bad debt write-offs are 1-2% of gross production. We typically don’t see this much written off. Could be because it is hidden? A report can be generated for the hidden dollars but you have no idea what the time period was that it was considered “dead”.
How Should Bad Debt Be Handled on the A/R?
2. Accounts should be reviewed monthly to determine if all efforts have been made to collect the debt, such as phone calls, emails, reduction in balance if paid in full, etc. If it is determined that the account is uncollectible, it should be written off to properly reflect the more accurate “net” production. Remember that you bill based on net production and not gross production. Software programs also allow statements that are sent out to your patients to not include these flagged accounts. So no A/R and no statements.
3. Monitor the amount of dollars that are written off monthly and annually to confirm that you are within industry standards or what you feel is reasonable. Most dentists feel that nothing should ever be written off, but that is not realistic. Determine a percentage that you can live with.
4. Create an alert indicating that the account has been written off, just in case you get lucky and the patient wants to return or the collection agency finds them and sends you a payment.
…And What About Those Orthodontic Accounts?
If you own a practice that performed orthodontic and restorative dentistry and the patients are seen for both categories, establish an “ortho” account that uses the patients’ names in ALL CAPS. Flag this account as an orthodontic account so you can generate an A/R report without the orthodontic accounts for the restorative part of the practice and a separate A/R report for only my orthodontic patients. If this is done in your office, be sure and instruct the financial coordinator to post the payments correctly to the correct account for accuracy.
Take a few minutes and review with your business team how they are handling your bad debt. Review the various ways that the A/R Report can be generated to show the “hidden” accounts. Maybe you don’t have any!
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