Accounts receivable (AR) is the money owed to the practice for treatment rendered.
This includes amounts due from patients, insurance companies, or other guarantors. A long-standing measurement for a healthy AR for a dental practice is called an AR Ratio and compares your total AR to your monthly production.
A healthy AR Ratio is under 1.5 and maximizes your cash flow while reducing the time and energy to collect monies owed. A quick calculation will reveal your AR Ratio.
$150,00 ÷ $200,000 = 0.75
(Total AR ÷ Monthly Production = AR Ratio)
In this example, the practice carries a debt of less than one month of production. Fee for service practices that collect in full at the time of service have very low AR Ratios. Practices participating in managed care (PPO plans) often find a lag time between claims filed and money received, creating a higher AR ratio. Extending credit unnecessarily, or poor collection protocols, reduces cash flow for the practice as the practice has already absorbed the overhead costs of team members and materials to provide treatment and requires the administrative team to take on banking duties.
In addition to a healthy AR Ratio, the practice should keep aging AR more than 90 days to less than 10% of the total AR (not including ortho treatment paid over longer time frames) and net collections at 98-100%. Net collections reflect the money available to collect after contractual write-offs for insurance participation are taken. Closely monitor these three collection benchmarks (AR Ratio, Net Collections %, and aging AR) with monthly reviews.
Benefits of a Healthy AR System
- Fewer statements and reduced time needed from administrative team members to track down monies owed. The longer a debt remains, the lower the chance of collecting.
- Ability to offer additional in-house financing for larger cases.
- Additional cash flow available to invest in the practice.
Tips to Maintain a Healthy AR System
- Communicate your financial policy verbally and in writing.
- Review patient balances the day before to know what to collect from the patient. These administrative huddles empower confidence in the team to collect as indicated and provide time to do some research if needed.
- Require patient signatures on financial estimates to eliminate surprises that create collection challenges.
- Gain insurance eligibility prior to treatment, more and more insurance companies are shifting financial burdens to patients through higher deductibles and reduced benefits.
- Implement credit card authorizations and a payment portal for patient convenience.
- Calculate your AR Ratio, gross and net collections, and aging AR monthly.
- File clean claims to reduce denials.
- Dedicate time to work on collecting balances.
- Utilize verbal scripting to address common patient questions and resistance.
We know a million things need to be accomplished in a dental practice; don’t let your AR be put on the back burner. Reach out to Practice Support Team for additional support in maintaining your AR.
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