Optometric Management Tip # 94   -   Wednesday, November 05, 2003
Keeping accounts receivable low

Many optometric practices carry more debt than is necessary from patients and from insurance companies, and in some cases, accounts receivable is really out of hand. This burden can be very hard on practice cash flow, so it's smart to work on bringing accounts receivable (AR) under control.

How much money should be in AR?

Let's set a goal for accounts receivable. Most practice's will have some unpaid balances for services and products because of two reasons: 1) If any insurance plans are billed, that outstanding amount is placed in accounts receivable and 2) many office management systems post a sale when items are ordered, so that amount appears as accounts receivable until products like glasses and contact lenses are picked up yet (even though the office policy may not require the balance be paid until the item is dispensed). The average monthly total of those two sales categories represent the minimum AR that we can expect. On the other hand, if the office billed 100% of all charges, and if 30 days were allowed to patients and insurance companies to pay the bill, the maximum AR that we would expect would be equal to one month's gross revenue. So, as a general rule, your AR should be less than one month's gross. How much less depends on how much insurance billing occurs.

How to lower AR

The biggest factor in controlling accounts receivable is developing office polices about payment and sticking to them. It's easy to want to bend the rules for good patients, or to attract new business, but this is an area that I stand firm on... or rather my staff does. We require payment in full for services at the time of visit, unless insurance has been approved in advance. We always ask about insurance over the phone, and we state all exam fees and payment expectations in advance. We require a 50% down payment for a product order to be placed, with the balance due upon delivery. These polices are certainly not extreme, and I find patients like knowing what's expected. I train my staff to not come to me for exceptions, because that puts me in a bad light. If a misunderstanding occurs, we may apologize for not explaining our policies clearly enough, but there are no exceptions.

In this age of increased insurance billing, I fear that optometric office staff members are losing their skills for collecting payments in person. While it is becoming normal to never pay cash in a general physician's office, optometrists dispense retail products, and from a business sense, it is good for us to be comfortable collecting payments. We need not be defensive about it. Patients expect to pay for services, and those who give you a problem about it are the ones who will probably be delinquent accounts, so let them go elsewhere. Every credit worthy person today has a Visa or MasterCard, and if they're not credit worthy, why should you extend credit?

Other factors that reduce AR
Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management