Accounts receivable turnover--the average amount of time that it takes a patient to pay outstanding invoices—is an indicator of your practice’s financial strength. It’s also used by banks and other financial lenders, when a practice is seeking the necessary capital and equipment to expand or make improvements aimed at better serving your patients. While most practices understand the importance of keeping receivables current, when it comes to actually collecting past due balances, efforts often fall short and can place the practice on precarious financial footing. This paper presents a strategy for preventing receivables from careening out of control as well as collecting existing past due balances.

1. Transworld Systems White Paper
Dental Practice Accounts Receivable:
Putting Your Money Where the
Mouths Are
January 2010
Introduction

2. Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where
the Mouths Are
Introduction
Accounts receivable turnover--the average amount of time that it takes a patient to pay
outstanding invoices—is an indicator of your practice’s financial strength. It’s also used by
banks and other financial lenders, when a practice is seeking the necessary capital and
equipment to expand or make improvements aimed at better serving your patients. While
most practices understand the importance of keeping receivables current, when it comes
to actually collecting past due balances, efforts often fall short and can place the practice
on precarious financial footing. This paper presents a strategy for preventing receivables
from careening out of control as well as collecting existing past due balances.
Accounts receivable turnover ratio: the higher the better.
This ratio can vary from two or three to as high as twenty, depending on your monthly
revenue and the speed at which you collect. This is truly a measure of your cash flow—
your ability to convert receivables into cash. Therefore, the higher the ratio, the better your
ability to collect and the greater your cash flow
It’s a simple formula: revenue/receivables = turnover (BNET.com). For example: if your
average revenue is $100,000/month and your average receivables is $35,000, then your
accounts receivable turnover ratio is approximately 2.85 ($100,000/$35,000 = 2.85). As
you can see, to increase the ratio, you would need to increase revenue, decrease
receivables or both. As a business owner, you must ask yourself what the return will be to
decrease receivables for example, by investing in added staff or turning over the
collections function to a third party agency.
Are you compromising patient goodwill or financial stability?
There’s a fine line between maintaining patient goodwill and financial stability. One should
not be compromised for the other. However, one indicator of the health of a practice is its
cash flow.
Cash flow and customer goodwill are linked. Cash flow impacts your ability to effectively
service your paying patients. Typical dental practices don’t actively pursue outstanding
balances until they reach 90 days aging. According to a U.S. Department of Commerce
study, nearly 30% of accounts at 90 days aging will not be paid/collected. Allowing
accounts to lapse too far into 60- or 90-day aging not only puts your practice at risk, but
also the quality of service you provide your paying patients. Are you compromising service
levels provided to paying patients by tying up your already stretched administrative
resources to chase debt that will likely not be paid? Additionally, are you cutting into your
profits by paying part-time resources to collect the uncollectable?
When it comes to receivables, the old adage—“an ounce of prevention is worth a pound of
cure”—applies. Most small to mid-size practices lack the staff to adequately pursue
balances, especially balances that have gone beyond 90 days. Furthermore, the staff is
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3. Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where
the Mouths Are
trained to add value to the practice by providing outstanding patient administration such as
prompt scheduling, estimates, billing, etc. Chasing after delinquent accounts is not a value
added service when it doesn’t result in recovery of past due balances, which is often the
case. Even with a traditional third party collection agency, the average rate of collection is
approximately 15%, of which the practice only receives approximately 70% (American
Collectors Association).
Having an effective accounts receivable policy can have a more positive impact on patient
goodwill and retention than allowing accounts to lapse into aging. A patient with an
outstanding balance is less likely to keep up with routine dental appointments. If they have
an urgent need, they’re more likely to go to another dental provider where they will not
have to pay their delinquent account before receiving services. The more current the
patient’s account, the more likely the patient will be to follow consistent dental care.
The following section outlines several tactics that will help you preserve patient
relationships while protecting your profitability.
Eight ways to increase accounts receivable turnover ratio.
There are a number of tactics that practices can implement right now that will ensure
prompt payment and avoid alienating patients or sacrificing potential referral business.
Many of the following tactics will not only increase your cash flow, but also streamline the
collections process.
1. Implement clear, concise payment and collections policy including:
a. Make sure patients understand upfront that payment is due when services
are rendered. If they are unable to pay in full at the time services are
rendered, determine the payment plan up front.
b. Allowable forms of payment: cash, check, money order, and credit cards.
c. Broken appointment charge and policy.
d. Note that patient is responsible for total charge. We do not look to a third
party for payment.
e. Office policy on insurance assignment. Full fee due now or just estimated
deductible?
f. Maximum number of payments allowed? Promissory notes or Truth in
Lending forms?
g. Interest, billing or service charge - rate and when applied.
2. Train staff to diplomatically explain and enforce payment and collections policy
including:
a. Always ask for payment when services are rendered, even if the patient can
only make a partial payment. Do not offer to bill the patient later.
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4. Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where
the Mouths Are
b. Avoid open ended questions when it comes to payment. Don’t say, “How
much will you be paying today, Mr. Smith?” Instead, approach with the
mindset that full payment is expected, and if the patient says they’re unable
to pay in full, then offer the other forms of payment such as credit card or
financing based on your policy.
c. Often a simple upfront reminder of your payment policy at the time the
appointment is made or when an estimate is provided can increase the
likelihood of securing payment. In some cases and depending on the
practice’s monthly revenue, having a dedicated resource to handle the
financial end of the business is more efficient and cost effective.
d. Know your legal rights and patient rights covered under the Fair Debt
Collection Practices Act and the Consumer Protection Act.
3. Accept several forms of payment including credit cards and financing to gain more
upfront payments.
4. When it comes to appliances and other laboratory related services for which the
practice must pay, always obtain at least a portion (30% or more) of the amount due
up front from the patient with the balance due upon final work.
5. Verify patient contact information upfront and keep records up-to-date with
subsequent appointments or calls.
6. Be proactive! Don’t wait until an account is 60 or 90 days past due to make the first
contact. Run monthly aging reports to gain a snapshot of your accounts receivable.
a. Make your first contact after the 30-day mark. It doesn’t have to be a cold,
stern collections letter. There are diplomatic, friendly reminders but the
reminder should always ask for payment in full by a specific date.
7. Avoid the expense of sending statements as a means of collecting.
Remember, the best opportunity to collect is while the patient is still in the office.
However, if you need to send statements, then don’t send more then three. If you
haven’t received payment after the first or second contact, then sending additional
statements will not be fruitful. Also, optimize your statements to ensure payment.
Avoid sending aging dates and the total amount due. Instead, include payment
options, the amount due and always include a due date.
8. Outsource collections
a. Turn over past due accounts to a conventional collections agency for a range
of approximately 30 cents on the dollar of the amount collected (American
Collectors Association).
b. Apply a third party web-based collection services that allow you to retain
control over your accounts while they handle the work of sending collections
demands for a low, flat fee. There are collection agencies that specialize in
dental collections. They give the practice assignment options that can
include: deciding on the intensity of the collection effort warranted on each
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5. Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where
the Mouths Are
account placed, the ability to add collection fees to outstanding balances,
web-based reports and “thank you” letters sent to patients who resolve their
accounts to your satisfaction.
Are you a dental practice or a lending institution?
Allowing patients’ accounts to slip past 30 days is in effect lending money by extending
credit. There’s nothing wrong with extending credit if your office policy permits and your
staff has the bandwidth to manage, or you outsource to a third party financing company.
However, extend credit intentionally, up front and not as a result of allowing the patient’s
account balance to lapse into 60- or 90-day aging.
Many practices extend credit unintentionally, creating an accounting backlog that must be
addressed by a staff already burdened with the daily activities of running the practice. The
staff is often not trained in effective credit and collections processes and their attempts to
collect past due balances not only end in frustration, but also don’t produce results.
While most practices prefer to manage patient relations directly, they turn over accounts to
traditional collection agencies only after the accounts have reached the 90- to 120-day
aging. At this point, data indicates that 30% will not pay (U.S. Department of Commerce
Study). Recovering receivables is like recovering a stolen car… the sooner reported, the
greater the likelihood of recovering.
The cost and opportunity of outsourcing collections
There are two options for collecting past due accounts: (1) percentage-based collections in
which a percentage of the amount collected is retained by the agency. An average rate is
30%; (2) flat fee-based agencies which collect past due balances and charge a fixed
amount per account placed.
With percentage-based agencies, practices do the upfront work of initial collecting. After all
attempts to collect have proven unfruitful, the collections agency takes control of the
collections process and the practice pays a commission on the amount collected. The
process is often more aggressive and much less emphasis is placed on patient relations.
A flat fee-based agency provides web-based tools and services that allow the practice to
maintain as little or as much control as desired. The emphasis is on maintaining patient
relations early on in the aging with diplomatic tactics that typically produce results without
alienating patients and usually on the first contact. A more aggressive approach can be
invoked for older balances and only those that the practice, not the agency, chooses.
The disadvantages of outsourcing collections include:
 Cost
o Percentage based collections makes budgeting less controllable. However,
flat fee-based agencies provide more control over costs since you know the
fee up front.
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6. Transworld Systems White Paper - Dental Practice Accounts Receivable: Putting Your Money Where
the Mouths Are
 Potential for alienating the patient
o Patients might be upset if contacted by a collections agency that is not
diplomatic in nature. However, flat fee-based agencies provide greater
diplomacy when used early on (around 60 days aging) and often their first
contact produces results.
 Losing control over the process
o Some practices prefer to defer control to a third party, making percentage-
based agencies the preferred choice. However, percentage-based agencies
base their level of collection effort on the balances of the accounts. This can
be a disadvantage for dental practices because of comparatively small
balances.
o Others prefer to turnover the collections work while retaining control of the
patient, making flat fee-based agencies a more appropriate choice.
On the other hand, outsourcing collections provides:
 Greater impact because collections is coming from a third party
 Possible implications for patient’s credit rating
 Removal of the dentist as the “bad guy”
Conclusion
The overall health of a successful dental practice is often indicated by cash flow. Accounts
receivable turnover ratio is a measure of how well the practice is collecting its accounts
receivable. A low accounts receivable turnover ratio can indicate poor cash flow and place
the practice at risk. Whether a practice uses its own staff or outsources collections, the
sooner the attempt to collect, the greater the probability of recovering the balance. With
the right policies, processes and outsourced partners in place, practices can maintain
better control over their accounts receivable and cash flow.
About Transworld Systems Inc.
Transworld Systems Inc. ®, a wholly owned subsidiary of NCO Group, Inc.®, is an industry
leader in profit recovery with headquarters in Santa Rosa, CA, and more than 100 offices
throughout the United States and Puerto Rico. Transworld and its service brand
GreenFlagSM Profit Recovery are redefining the collection industry by providing businesses
and medical organizations with better tools for recovering bad debt and past due accounts.
Transworld has collected $2.4 billion over the past 5 years for more than 60,000 clients. In
addition, Transworld Systems specializes in the dental market throughout the United
States and has recovered $121 Million for over 10,000 dentists. For more information, call
1.888.446.4733 or visit www.transworldsystems.com.
© 2010 Transworld Systems Inc. 6