People owe you money. As long as you are in practice, people will always own you money.
The money they owe is called accounts receivable. From the time you issue a bill to the time the person pays, the money is in accounts receivable. Basically, you’re giving the people who owe you money an interest-free loan.
When looking at the health of your bank account, it’s a good idea to keep the time money spends in accounts receivable as short as possible.
Let’s say you have $100,000 in accounts receivable, and it takes the average person/insurer 30 days to pay. For those 30 days, you are out $100,000 in cash.
Now, if you can cut your accounts receivable down to $50,000—or shorten the amount of time money is in accounts receivable—all of a sudden you have more money available to reinvest in your office. Rather than have $50,000 on loan to your patients and insurers, you have that money available to spend on new equipment, marketing or staff.
But money in accounts receivable is not always a bad thing. Let’s take a visit to Dr. Deedee Ess’s office here to see why it may make sense to lengthen accounts receivable is certain cases.
Say Dr. Ess is trying to increase case acceptance. One option would be to allow patients to be treated today, but not be billed for a few weeks. This is great for patients, as they get treatment today but can delay the bill. But it also increases the amount of money in accounts receivable, and the amount of time money spends there.
Here, Dr. Ess is saying that she’s fine waiting a bit for payment—and extending short-term loans to patients—if it leads to an overall increase in office revenue.
It’s also important to remember that the longer money spends in accounts receivable, the greater the risk of default.
When looking at your finances, there’s not necessarily an ideal length of time for money to be in your office’s accounts receivable. It all depends on your office strategy and the needs of your patients.