It’s easy to become complacent about receivables when the funds are flowing, but complacency is what gets dental practices into trouble when business is slow or patients start missing payments. Specialist practices such as orthodontists and periodontists are most at risk of financial issues due to the long-running or significant treatment plans they provide. While these practices usually require an up-front deposit and regular payments over the course of the treatment, there is no guarantee that patients can meet their obligations. General dental practices that require patients to pay at the time of consultation are less exposed but not immune to cash flow troubles, particularly if they also offer seven-day payment terms. To avoid dips and spikes in cash flow, it makes good financial sense to implement a collections policy, according to Heath Stewart, a director at Ecovis Clark Jacobs, an accounting firm that specialises in servicing the dental profession. “While a collections policy is common in specialist practices, it is something I would encourage all practices to put in place immediately,” he says. “They should work with an accountant to record their processes and procedures into a document that can be shared with and easily understood by patients.
“If practices intend to extend or provide credit to their patients, recovering that debt will be almost impossible unless there’s been an appropriate document given to the patient outlining the payment terms and procedures,” says Stewart. A good collections policy should contain four essential items. The first is an overview of the treatment plan, including a description of the procedure, the timeframe and the cost. This ensures the patient is fully aware of the elements of the treatment and can see the cost of each item. The second element of a collections policy is the payment terms. This will vary depending on the practice. For instance, a general practice might require payment at the time of the treatment or payment within seven days.
A specialist practice might ask for an up-front deposit and regular instalments over the course of the treatment, or offer a discount if patients are willing to pay for the entire treatment up front. The collections policy should also describe the payment mechanisms available to patients. This could include direct debit, credit card, BPay or cheque. Practices can also consider offering a credit facility through a third-party credit provider, or an in-house payment plan. Finally, the collections policy should include debt recovery procedures. “The policy should include terms and conditions that set out what will happen if a patient defaults on payment arrangements, for example, if they would be liable for any additional costs of collection incurred by the dentist, such as legal costs, interest and court fees,” says Georgina Odell, a senior associate at Meridian Lawyers, a firm with a practice area dedicated to advising dental practices.
If a patient misses a payment, the first step is to call the patient to courteously remind them to pay. If they don’t respond, the next step is to send a written notification informing them that the practice will have to commence formal recovery actions if payment is not received within a nominated time. If payment is still not forthcoming, practices can refer the matter to a debt collection agency or solicitor for advice. If the patient does not pay after being contacted by a solicitor or debt collection agent, then dentists need to decide whether to commence legal proceedings or write the debt off. “This decision would be influenced by the amount outstanding, and the ability of the patient to pay,” says Odell. “If a patient appears to have the ability to pay, it may be worthwhile commencing legal proceedings for recovery, although there would be advisors and court fees to pay. “Occasionally, a patient may dispute the quality of service provided, or the amount of the costs being charged, in which case they may file a defence to any court proceedings which are commenced,” says Odell. “In many cases, however, the patient would not have a defence to the claim, and the dentist’s solicitor can enter judgement in default, i.e. without any court hearing taking place and without anyone having to give evidence.” If a debtor still refuses to pay a judgement debt, then the dentist’s solicitor would need to undertake further work to try to enforce the judgement. This can include applying for court orders to seize a debtor’s goods, money in bank accounts or money due to the debtor as salary, or petitioning for the debtor’s bankruptcy if the debt is over $5000. “Often, just the threat of these procedures is enough to persuade a patient to pay if they can,” says Odell. Once a collections policy is in place, dental practices must ensure they adhere to set procedures.
Stewart advises embedding the policy in the practice’s overall operations policy and familiarising all staff members with it, including training new employees. “Practices should also include a receivables review at weekly or fortnightly administration meetings,” adds Stewart. “Every receivables item should have a code; for example, green is the account due to be paid in seven days; amber is a reminder call or letter sent, and red means recovery action is in process. It’s an effective way to see if funds are flowing smoothly or if there are issues. “Everyone has a unique way of operating their practice and they do different things in different ways,” says Stewart. “However, the success or failure of the collection policy comes down to the practice’s ability to follow procedure and be highly organised in the way it manages receivables.” Practices should delegate the management of receivables to the practice manager and make it part of their key performance indicators. Programs such as Dental4Windows and other dental practice management software can be used to schedule receivables management into everyday activities. “Doing this will help ensure outstanding accounts are identified early and followed up regularly, preventing receivables from ageing,” says Stewart. Managing receivables is particularly important when business is slow or approaching a shutdown period, such as over Easter or Christmas. “If a practice is going to be closed for a period of time, the practice manager should make sure updated statements are sent to those who owe them money at least two weeks before closure, and follow up with a phone call at least seven days out,” says Stewart. By being disciplined, methodical and thorough in their approach to accounts receivable, dental practices can avoid bad debts and look forward to a regular flow of funds. ?
