Dental practice cash flow primarily depends on billing patients and insurers. How much revenue your practice generates matters for both tax filings and external parties like banks and investors, but in the numerous challenges of running a dental practice, having enough cash on hand is a different matter altogether.
Cash flow analysis refers to how much cash is coming into your dental practice versus how much cash is flowing out, regardless of the source and destination. Managing dental practice cash flow requires special analysis separate from simply examining income and expenses because the timing of these transactions is frequently different. How will you ensure that your practice has sufficient positive cash flow to pay employees’ salaries and other expenses?
Having a strong grasp of cash flow is crucial in successfully managing a dental practice. Here are our tips for dental offices to efficiently maximize cash flow.
Formulate a Financial Policy
Most of a dental practice’s cash inflow comes from patients or their dental insurance. To help guide patients and protect your business, your practice should draft a financial policy that clearly communicates your payment terms.
Your financial policy should detail when payments are expected to be made and what will happen in the event of non-payment. Be clear when detailing how this policy will differ for patients who have dental insurance and those who do not, as far as processing and costs go. Patients need to know what their payment options are, how long they have to pay their bills, and if any financing options are available.
The most important aspects of your financial policy should be visible at the bottom of every bill so that patients are aware of the payment timeline, and which payment methods are accepted.
Quantify Treatment Details
Transparency is the best policy for both the practice and the patient.
Be upfront about payment expectations for procedures before patients commit to an appointment. While dental coverage payouts are not always predictable, provide the closest coverage estimate based on available information to determine the patient’s responsibility. Provide a thorough breakdown in an itemized estimate so patients know which charges are for specific aspects of their treatment.
The more information and transparency the patient has regarding your billing practices and estimates, the more likely the patient will find it easier to understand, be able to make an informed decision about continuing with or timing the treatment, and be more willing to pay. The details in the estimates give the patient more appreciation for the care they are receiving, and a greater understanding of the cost of treatment.
The estimate should also clearly state whether full payment is required at the time of treatment, per appointment, or if payment plans are available.
Tap Into Insurance to Cover Treatment Costs
Your staff should be knowledgeable in dental billing and how dental coverage works so they can communicate with insurance companies effectively and clearly explain to patients how insurer policies and payouts will impact the pricing of treatments.
It is common for patients to postpone or even avoid treatment due to concerns about cost. Since dental policies can be difficult to understand, your staff should review patients’ coverage. There may be benefits or out-of-pocket limits they weren’t aware of and you may find that their plans cover more of their care costs than the patient expected.
Your staff should educate the patients on their financial and treatment options and potential issues that could arise. If cost is the primary roadblock to the patient receiving care, staff should be thoroughly trained in discussing financing options and/or alternative treatment options with patients.
Attempt to Settle Delinquent Accounts
Referred to as “bad debt” in accounting terminology, long overdue accounts can make up a surprising portion of the average dental practice overhead. Delinquent accounts that have long gone unpaid may be collected to shore up your practice’s cash flow.
Review the delinquent accounts’ previous payment histories. If the patient normally paid on time then dropped off, it could be indicative of a one-time billing error or lapse. If the patient has historically paid late or not at all, more drastic action may be needed for their account.
If a family is struggling with financial issues, past due dental bills are not likely to be a high priority for them. Before your staff reaches out to patients with delinquent accounts, they should be trained on how to navigate sensitive cases and how to properly communicate when having a difficult conversation.
Hiring a collection agency is an option, but this does cost you money and will only return a fraction of the delinquent amount, while also causing distress to the patient. An alternative option would be to propose a payment plan, as smaller amounts of cash spread out over a longer timeframe offer more predictable cash flow and is preferable to not receiving payment at all or settling for a smaller lump sum. A third option is asking the patient to settle for a lump sum that is less than their amount due but higher than what a collection agent would offer. The primary goal is to close delinquent accounts and increase cash inflow. Understanding your patient’s situation and your own business needs will help you determine which option is best for the situation.
Accept Various Forms of Payment
Traditionally, dental practices have accepted cash, credit and debit cards, and personal checks. Today, there are numerous payment methods, even including crypto payments that can be converted to cash. It would behoove your dental practice to consider accepting more of these less traditional options, in addition to the typical forms of payment.
Contactless payment systems like PayPal, Apple Wallet, Google Pay, Venmo, Zelle, and so on have become increasingly popular. With COVID-19 causing concerns about cash and even card readers carrying the virus, contactless payment methods are here to stay.
By accepting credit and debit cards in addition to contactless methods, it reduces hassle on both ends by giving the patient an option to pay the same day they are seen. Many patients prefer to use cards and contactless methods since it provides them with records that are easy to reference, and are apt to avoid businesses that don’t accept these methods.
The more payment methods your dental practice accepts, the easier you will make it for your patients, which translates to a more consistent cash flow.
Create a Treatment Financing Program
There are several options for payment plans if patients are unable to pay for the cost of their treatments upfront. Installment plans can be arranged directly through your practice, but there are third-party companies that specialize in treatment financing.
The financing company will pay your practice for treatment costs in full, ultimately shifting the responsibility for payments and collection to them and wiping out your patients’ balance with you. Outsourcing financing would come at a cost to you, but it also reduces the need for this in-house. You’ll want to weigh the cost and time differences to make a decision that’s best for your practice.
Offering financing options to your patients gives them greater flexibility with payments. If the patient sees they can pay over time as opposed to being immediately responsible for a large lump sum they may not be able to afford, it will make them less likely to postpone treatment and you will still get paid.
However, patients won’t take advantage of financing if they’re unaware of it. Feature its availability on your practice’s website and billing documents. Train your staff to effectively communicate payment plan options and how the financing works. This includes sharing any disadvantages of financing, primarily any interest that will accrue over time.
Improving dental practice cash flow ultimately rides on collecting cash as close to the day of treatment as possible.
It begins with drafting a simple and transparent financial policy that lays out responsibility for payment, payment plan options, and what will happen if bills go unpaid.
Since life happens and patients may not always be able to pay their bills, having a plan for delinquent accounts helps in maintaining positive cash flow. Settling directly with the patient, whether a lump sum or offering payment plans, is generally preferable to using collection agencies, which take a significant amount out of delinquent balances.
Treatment costs should be clearly communicated to patients prior to any procedure so they can make an informed decision on if, when, and how they will proceed. Staff should also research patients’ insurance information since patients may be unaware of their coverage levels and potential pitfalls with asking their insurer to cover certain procedures.
Payment should be facilitated in as many ways as possible, such as accepting more payment methods and working with third-party financing companies that specialize in payment plans for dental work. The more options a patient has for payment, the less legwork needs to be done to collect payment.
Your practice should also have a go-to financial consultant at your side who understands the nuances of the dental field. The Dental CFO provides a wide range of dental practice management consulting services to take your practice to the next level, no matter where you are in your career. Our CFO Core service enables you to focus more on your role as a clinician, while your full-service CFO partner focuses on accounting, tax, and strategic planning for the short and long term. Contact us today to see how our team can help you reach the success you’ve worked hard to achieve.
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