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Depreciation: The Biggest Threat to Your Medical Practice's Cash Flow

Posted by Melanie Reed, Nov 30, 2015

The Department of Commerce performed a study on accounts and found that [tweetme text="after 30 days, 95% of your accounts are still collectable."]

After 90 days, that percentage drops to 75%. What was interesting and actually kind of frightening was that after 90 days, accounts lose .5% per day of collectability - that's 15% per month! Some more recent trends say that post-90-day depreciation is closer to 20% per month. Whether it’s a weekend, a holiday, or bedtime, you are losing money every day after that 90 day mark. This is critical to understanding your cash flow.

Ask any bank professional and they will tell you that receivables beyond 90 days are no longer an asset - they are a liability and a strong indicator of the health of your business.

This is what all practices must appreciate (no pun intended).

➜ Time is not on your side. The longer you allow a patient to go without paying their balance, the less likely it is that you will ever see any of the money.

➜ Early intervention is critical. Most businesses wait until an account reaches the 6-month point before employing a collection agency strategy. The problem with this approach, aside from being archaic, is that [tweetme text="only 30% of the accounts are collectable after day 180."] It doesn't matter if you use an agency, do it yourself, or have some other hardball tactic to get patients to pay after 180 days; the simple fact is that after this point, your accounts have depreciated to where only 30% of it will ever be collected.

Your collection agency has probably brought this to your attention. It is not a mystery to you that they want the accounts sooner, but they want them because of depreciation. You can learn more about percentage based collection agencies in this article.

Let's agree on a few things:

  • Debtors know that they owe money, but they don't care.
  • The older an account gets, the harder it is to collect.
  • There is a difference between an unintentional delinquency and a high-risk debt.
  • Reliable and effective follow-up can be challenging and expensive.
  • Most businesses would choose to never have to use a collection agency.

As in-house efforts carry on without a consequence, the urgency level drops each month. AT&T provides a strong consequence for non-payment - they can shut off the phone service, but what about doctors? What is your alternative?

If your staff has thoroughly pursued a past due account for 60-90 days from the due date, and it still is not paid, the customer is sending a message. More than likely, your practice’s staff has requested payment four to six times in the form of phone calls, letters, and statements. Time and financial resources budgeted for internal collection efforts should be focused within the first 90 days when the majority of accounts can and should be collected.

From that point, a third party can prompt a patient to pay in ways your business cannot, because the demand for payment is coming from someone other than your office. Avoid paying a percentage to a contingency collection agency, going through small claims court, or using an attorney by utilizing a flat fee collections service.

Even with a carefully designed and administered collection plan, there is a residue of accounts that will never get collected. Save your practice time and money by identifying these accounts early.  Your business will benefit from improved cash flow from the majority of accounts that do pay.

Source:

Wally Schmader, Transworld Systems, Inc.

Karen Cooper, Transworld Systems, Inc.

Topics: billing, eVisit Blog Posts, cash flow, cash flow melanie, collection, collections, depreciation, financial health, medical practice cash flow, melanie reed, payment, Practice Management, profit, profitable practice, revenue, small practice

Melanie Reed

About Melanie Reed

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