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Dentists Playing Bankers: A new perspective on accounts receivable by Louis Malcmacher, DDS, MAGD

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Header: Dentists Playing Bankers
by Louis Malcmacher, DDS, MAGD

There are several compelling reasons why dentists should do everything they can minimize their accounts receivable (AR). Most of these you've probably heard before: For example, you already know that AR can affect your cash flow, making it difficult at times to meet your own financial obligations. In a struggling or recovering economy, patients may delay payment because they find it difficult to prioritize pating their dentist when they have other financial commitments. And AR can affect your schedule when patients who owe you money avoid returning for additional care.

But there are other reasons that may not be as abvious. Lets look at the cost and risk of being a banker from a different perspective—by practice stages: growth, stability and transition.

The decade of growth
The first decade of a practice is focused on growth and paying down debt: attracting new patients, establishing long-term relationships and reinvesting profits into your systems, technology and marketing.

You may think extending credit through the practice makes sense. For example, if patients want the dentistry but would like to pay over time, you're doing them a favor by extending them credit. Your production goes?up and these patients appreciate what you did, become committed and loyal, and refer friends and family. And on the surface, it seems AR is a great way to manage cash flow—you know the money is coming in and can plan your expenses accordingly. Unfortunately, this is simply not the case.

Money collected today that you have access to is more valuable than money sitting on the books. Why? Because you have that money now. Sure, there?will be patients who pay on time every month, but even then you're losing the opportunity?to invest uncollected fees and earn interest, or invest in your practice to fuel growth. Some patients will lose the motivation to pay their bill because the dentistry is done and they already enjoy the benefits of your care. These patients may end up in collections, where you lose even more of your hard-earned production and where your team spends too much time collecting past-due accounts instead of focusing on the most important thing: the patient right in front of them.

When you carry AR instead of using an outside company to provide financing, you also have unreliable cash flow. I once heard a doctor describe himself as the "poorest rich dentist" because of his AR. Imagine the time and effort his team must spend on billing and collections, and the unnecessary stress added to their days. By using an outside patient financing program, you still give patients flexibility and longer terms of up to several years to pay, but you minimize the time and effort your team spends on billing and collections—time you can invest into activities that add value to your practice and enhance patient care. Plus, with a third-party financing program, patients may not be as hesitant to return for additional care or hygiene because they won't owe you money.

The decade of stability
The second and third decades of a practice?are usually the most rewarding, clinically and relationally. There's a strong base of patients, perhaps spanning generations, who value the doctor and the dentistry. The team has built long-term relationships and enjoys their daily interaction with patients.

Even if extending credit to patients is the exception, when patients are established and the team members are comfortable with them this exception can easily become the rule. When this happens, AR can unintentionally become out of control, increasing overhead costs and stifling cash flow.

Yes, we want to help people and provide the care—but in a way that's financially responsible for the practice and patients.

With a patient financing program, patients may be able to take advantage of a promotion that allows them to avoid interest charges if they make required monthly payments and pay the balance in full by the specified date. This option can be very attractive to patients who'd like to pay, but don't want to use their Visa or MasterCard.

The decade of transition
At some point in a dentist's career, he or she begins to think about life after dentistry. And often, retirement dreams are funded at least in part by anticipated proceeds from the sale of the practice. You've invested a lifetime building your practice, and it is an asset you want to get top dollar for when you sell.

When potential buyers are looking to purchase a practice, they want a strong and stable patient base, nice facilities, technology and a valuable brand/reputation. All of these will give them confidence of future earnings and will bring you top dollar. A practice with significant AR does not. In fact, if you have "healthy" AR, you have an unhealthy situation.

To buyers, AR can signal poor financial management and may indicate a patient base that is accustomed to paying the doctor later instead of at the time of treatment. These patients may be resistant to changes the new owner makes to the financial policy, and they may leave the practice rather than changing their payment methods.

Making the changes
I've been in practice for more than 30 years and have always limited my AR to billing only when insurance benefits have been underestimated. If you currently have more than two percent production in AR, here are two steps to migrating patients from AR to other payment options.
  1. Prevention is your first focus (just like in oral care). For new patients and existing patients who do not owe the practice money, immediately implement policies that require payment at time of service. Include payment options such as cash, debit or credit cards, and third-party financing.
  2. For existing patients who do owe your practice money for treatment rendered, it's important not to surprise them with a new policy at their next visit. Send a letter with their next statement, letting them know your policies have changed based on recommendations from your accountant. The letter might read:

    "ABC Dentistry would like to better serve our valued patients, and will be investing?in new technology and facilities and providing new services in the near future. To enable this growth, we will no longer?be extending credit to patients and will instead offer financing through a third party.

    "We wanted to let you know about this change to our financial policy so that, if necessary, you can apply for financing by phone or online before your next visit. Our staff also would be glad to assist you during your next appointment.

    "We would also like you to take this opportunity to settle your current account. Your options include sending a check for 50 percent of the balance by [date] and remitting payment in full by [date]; or paying the amount in full today using your credit card."
Be sure to let patients know that the change will enable you to better serve them by investing in technology or providing new services.

Ultimately, it makes sense to engage a financing program that is better trained and equipped to extend credit responsibly to patients. This frees up time for you and your team to do the important tasks that will help your practice grow, create a foundation for stability, and optimize the asset you one day hope to sell.



Dr. Louis Malcmacher Dr. Louis Malcmacher is a practicing general dentist and an internationally known lecturer and author. Malcmacher is also president of the American Academy of Facial Esthetics, an umbrella organization committed to providing the best possible outcomes in areas of facial esthetics and facial pain treatment. To sign up for his monthly e-newsletter, go to facialesthetics.org.



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