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Managing Accounts Receivable

You work hard for your patients. You have invested a tremendous amount of time and money learning your art and craft and you apply your skills to the best of your ability on every patient. You expect payment for your services, since those services have real value in terms of the patient’s quality of life. Accounts Receivable (AR) is money owed to you for services that you have rendered. It represents the work you have done for which you have not yet been paid. While high AR can be a sign of high productivity, it can also be a sign of financial mismanagement. For this reason, management of AR deserves careful scrutiny in your practice. While it can be uncomfortable asking for money from patients and insurers, one must remember the adage of “no margin, no mission”. If you do not collect money for your work, your business will fail.
Definition of AR
In business, the definition of AR is a legally enforceable claim by a business against its customer for services rendered or goods sold. In a dental office, AR represents all services rendered including examinations, X-rays, laboratory studies, procedures, materials, and dental hygienist visits. It is money owed to you for the work performed by your office. Unpaid AR is the “money left on the table” in its truest sense. Accounting software (and your accountant) will track and trend AR and generate reports. If a patient does not pay his or her bill for a visit in full at time of exit, AR goes up.
AR is proportional to the amount of work you have done. AR is also proportional to the length of time it takes insurers to pay you and to the length of time it takes you to post payments against patient accounts. A rising AR with level billings over time correlates with higher losses, since the probability of collecting money falls as weeks and months pass.1 The socioeconomic status of your patient population and patient understanding of your payment policies can also affect AR.
Reducing AR requires sound business practices and fastidious tracking. While “reducing AR” implies the collection of money, write-offs due to billing errors also reduce AR. Note also that collecting money is a separate issue from the length of time it takes to deposit checks and cash. Practices can see a rise in AR in cases of employee fraud in instances where the office collects money but does not post that payment against the patient account. Finally, you must balance aggressiveness of collection efforts with the risk of repercussions of an overly strict business approach.2
Who Is Responsible?
Multiple parties participate in the management of AR. The front desk team, the financial coordinator, the practice accountant, and the patient all influence AR. However, the ultimate responsibility lies with you as the small business owner. There is no substitute for the need to “tend the garden” constantly and consistently. This responsibility begins with the first interaction with the patient. Business owners must set policies and procedures3, enforce the rules, and hold employees and patients accountable for compliance.
Written financial protocols are a must for every practice. The protocol should include these topics4:
• New patients with insurance and without
• Emergency patients first visit
• Insurance verification timeline and process
• Payment plan options
• Removable prosthodontic protocols
• Crown and bridge protocols
• Secondary insurance policy
• Financial discussion process — who, where, when, documentation
• Outside financing partner process
• Divorced patients and children of divorced patients
• Privileged patients, including staff family members, professional courtesy, specific patients who get discounts, and senior discounts.
The control of AR begins at the time of patient intake. The receptionist explains financial policies initially over the phone and then in person, and can point patients to your professionally designed web page for your financial policy prior to the visit. The receptionist should encourage patients to bring a form of payment with them. At the time of check-in and registration, the receptionist hands the patient written financial policies and sample fee schedules if available. Offices should consider collecting patient co-pays before bringing the patient back into the exam room. Every patient should have a financial plan before any dentistry is performed.
AR management continues in the exam room. The dental professional provides a review of the treatment plan, options, alternatives, and proposed work-up. With this information in hand, you can present a customized list of charges for the planned treatments along with information on the patient’s insurance coverage and plan limits. Business office staff should check to ensure that you do not need prior insurance authorization for a planned procedure. You should be able to delineate the anticipated cost out-of-pocket for the patient along with your payment policies. You should then document this discussion in the electronic record and request a signature from the patient certifying their understanding of the charges and options.
After the visit is complete, AR management continues at checkout and thereafter. The receptionist collects the appropriate co-pay and deductible if not previously done at check in, accepting cash, checks, credit cards, PayPal®, or any other means of payment available. If the patient is unable to pay for the visit, the receptionist can discuss predefined payment plans or financing plans.5 All employees must be aware that, once the patient walks out the door without paying or arranging to pay through a financial agreement, the odds of collecting money for your work start to fall precipitously. If a patient cannot pay while in the office, the receptionist can ask the patient to contact the office as soon as possible with a valid method of payment. Finally, you and your billers must submit billing and coding to third party payers correctly and promptly.
Many dental offices offer payment plans for dental emergencies or large treatment plans, many of which can incur large out-of-pocket expenses for patients. These payment plans vary from practice to practice, but should be set in stone for a particular practice. You may offer the patient, for example, 3 months or 6 months payments interest-free, with interest accruing after the free period. You must spell out all financial terms on paper and obtain the patient’s signature, keeping a copy and giving a copy to the patient. Financing options such as this can be a powerful marketing tool to entice patients to select your practice for their more extensive dental work. Financing plans will raise your total AR, but your patient is now financially (and legally) obligated and invested in his or her dental care. Numerous example agreements are available on the Internet, allowing you to customize them as needed to suit your practice.
Working Older Receivables
Working aging receivables is both a skill and an art. An experienced biller who is adept at handling receivables is a very valuable asset to any practice. While the total dollar value of receivables is important to know, the measure most often tracked is “days in AR” or AR days. Accounts receivable days represent the number of days that a customer invoice is outstanding before it is collected and is defined as the current net receivables balance divided by the average daily charge amount (AR days = AR balance/average daily charge amount). While the goals is to keep AR days as low as possible, the typical target is no more than 50 or 60.
Reducing days in AR requires a combination of direct-to-patient telephone calls, e-mails, and letters. As the age of an account increases, the letters to the patient become progressively more direct. At the same time, the biller follows up on insurance rejections and inquiries aggressively and makes any necessary corrections on submitted insurance claims. These employees are critical to the financial success of your business and they need your support. There are many instances where a biller, afraid to disappoint her or his employer, hides the facts about rising AR days or hides insurance claims rejections. As a small business owner, you must diligently monitor this area of your business. Asking patients and payers for money is difficult for many, and the boss should provide emotional support and kudos for the employees responsible for these tasks.
Collections Agencies
At some point, you may need to consider some debts uncollectible. Your staff does not have the time or means to track down every last penny owed to you. This is when dental offices consider the use of a collections agency. The use of these agencies is a controversial subject since patients sent to collections may try to strike back through malpractice suits or negative advertising, social media, and word of mouth.6 Be careful in your choice of collections agency as some are more ethical than others are and some are more expensive than others are. You can start by asking your colleagues about their experiences with agencies. Note that collections laws vary by state, so be sure that your choice can operate in your state. In general, the practice will write off the balance at the time that it turns the account over to a collections agency. Many practices consider discharging the patient from the practice at that time.
Managing AR is the responsibility of you as the business owner. While you can delegate certain tasks to an employee, you must continue to oversee the process. You should set firm policies at the outset by which everyone must abide and ensure that every patient is aware of the expectation to pay balances promptly. You deserve to be paid for the work you do!
1. Rahmani A, Tahazadeh R. Fundamental Analysis of Receivables and Predicting Future Earnings. Journal of Accounting Research. 2014;4(1):135-156.
2. Michalski G. Accounts receivable management in nonprofit organizations. Zeszyty Teoretyczne Rachunkowości. 2012(68):83-96.
3. Kerr J. Protecting your practice. Journal of the American Dental Association. Jan 2015;146(1):50-51.
4. Drevenstedt L. 12 financial arrangement pointers. 2012; http://www.dentistryiq.com/articles/2012/06/12-financial-arrangement-pointers.html. Accessed 25 July 2015, 2015.
5. Abou-Zamzam AA. Patient financing: How it helps your patients and practice. 2015.
6. Salisbury C, Procter S, Stewart K, et al. The content of general practice consultations: cross-sectional study based on video recordings. The British journal of general practice : the journal of the Royal College of General Practitioners. Nov 2013;63(616):e751-759.

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