When we look at the whole picture, it’s frightening to see just how many chiropractors are on a collision course for disaster because they allow a high amount of patient indebtedness.
If this statement rings true for you, remember: You must get paid for services rendered in a timely manner. You are not the First National Bank. You can’t buy groceries or pay your rent or salaries with money you don’t have. Grocery stores won’t take your ledger card as payment in full; they want cash, a check, or, in some instances, a credit card.
Furthermore, high receivables can result in greater personal debt. When people owe you too much money, you have to borrow money yourself, using the money you still need to collect as a form of collateral.
This is the proverbial “Catch 22.” Failure to collect your receivables can dramatically increase your overhead because of the additional costs incurred when you hire more staff, buy more equipment, pay higher phone bills, etc., all in an effort to chase yesterday’s money.
Despite what some of you are probably thinking, you won’t lose half your practice if you don’t extend credit to all who request it. Most of the patients you will end up losing are the ones who weren’t going to pay you, anyway.
Extending Credit
You will undoubtedly encounter some patients who need a credit system (other than a bank card) to pay their bills. As a last resort, you can always offer the patient an in-house credit plan. On the surface, it seems this system has the potential to allow you to enjoy the best of both worlds. You can keep the patient and get paid, too. But be careful, because this altruistic attitude can escalate rapidly, and before you know it, your accounts receivable are through the roof.
When you do extend credit and allow some flexibility in payment options, you greatly increase your chances of not getting paid. People have a priority list when paying their bills. They pay the mortgage or rent first, utilities second, and so forth. Paying doctors’ bills is down around 10th place, and many people run out of money at about number eight or nine.
By tightening your payment policy, putting it in writing, and having the patient read and sign it, payment of your bill receives nearly the same priority as a charge card, which is usually number three or four on the list. With a strong financial policy, patients are less likely to call up a with a tale of woe about the kid’s braces, a new roof, or whatever.
If a patient does complain directly to you, simply reply, “Ms. Smith, I have a deal with my billing department… they don’t adjust patients, and I don’t interfere with their department.” When the patient talks to the insurance CAs, they can reply, “I’m sorry Ms. Smith, but we have a contract guaranteeing payment as outlined, and our office policy prohibits changing that contract.”
If patients get upset about their bills, they’ll probably direct their frustration toward the billing department personnel, rather than toward the doctor. This system allows you to keep the patients, collect the fees, and to avoid potential litigation from disgruntled patients upset about their bills.
Advantages and Disadvantages
Not surprisingly, extending credit has advantages and disadvantages. On the one hand, when a patient receives credit in your office, you most probably will collect the entire fee — but only over an extended period of time.
If cash flow is no problem, and you can wait from several months to a year for your money, it may well eventually pay off. Try not to extend payments beyond the period of patient services. Experience shows very little chance of getting reimbursed for your services after the patient has stopped coming in and is no longer active with treatment. It’s extremely important to minimize your losses on accounts receivable.
When it comes to extending credit, you need to recognize a couple of principles:
- Granting credit carries with it an unavoidable element of risk.
- While no one credit /collection program can serve all situations, there are some basic procedures you should follow to increase the potential for success.
It’s always preferable to get paid upfront. However, if you must extend credit, there are three important requirements to keep in mind:
- A clear explanation of terms must be delivered when a credit transaction is made. The credit agreement must be IN WRITING, AND SIGNED AS WELL AS DATED!
- A systematic and diligent follow-up should be made on every account.
- A periodic age analysis should be made on every outstanding account.
It is important that a systematic follow-up procedure be established for your front office. Periodic review will help you keep your collection system intact. The aging analysis (30, 60, 90, and over 90 days old) will help you spot weaknesses in your approach and will help you quantify how much credit you are granting.
Proper and constant attention involves setting up office financial policies, collection schedules, and a thorough follow-up to be sure the steps are being followed. Part of this procedure involves recording the date when calls are made, agreed-upon payment arrangements, and the follow-up date to verify payment has been made. It is important that firm payment arrangements be made and followed up.
If your procedures do not achieve satisfactory results, your staff must let the debtors know you are making a final demand. (A sample of a final demand letter appears on this page.)
If payment is not made, you have a couple of options:
- Write off the debt.
- Send it to collections. It’s preferable to use a collections attorney rather than a collections agency. Many agencies tend to go after debt so aggressively, they can alienate patients or former patients, and they end up doing more harm than good. Also, be sure you have the final say on who gets a “summons.” Never file in small claims court; the time and money you have to spend usually aren’t worth it. Even if you receive a judgment in your favor, the judgment can be difficult to enforce when it comes to collecting.
When To Be Liberal
If your accounts receivable balance looks as long as your Social Security number, it’s time to try a liberal payment plan, rather than a liberal credit plan.
Liberal credit plans: Why doesn’t a liberal credit policy generally work? The main reason is that the patient has made no commitment, no investment, and no sacrifice, and hence feels no moral or financial obligation. In fact, without a firm payment plan in place, some patients may have never really made a true decision to repay the debt in the first place.
With liberal credit plans, the patient’s bill builds over a period of time. The original billings and the subsequent ones go unpaid until the doctor and office staff become so frustrated, they send the patient to collections. Then the patient usually becomes upset with the doctor and staff. It’s a no-win situation.
Liberal payment plans: Liberal payment plans, on the other hand, prevent an accumulation of past-due accounts in your office. The liberal payment plan is a written agreement between the patient and your practice in which he or she agrees to pay a definite amount on a specified date each week or month.
Steps to a successful payment plan include:
- Contact a local credit bureau to assure that the patient is creditworthy.
- Establish a payment that is affordable for the patient.
- Have the patient sign a written agreement.
- Have the patient make a minimum down payment of at least 20%.
- If possible, make arrangements with the patient and his or her bank for automatic withdrawals into your practice’s bank account.
- Charge interest on the unpaid balance to give the patient added incentive to make regular payments and pay off the balance promptly. (Remember, even if you are not charging interest, you must, by law, provide the patient with a copy of the Truth in Lending Law.)
- Make sure the front desk keeps the signed agreement on file, so your CAs can refer to the agreement for specific monthly payments and fines for missed payments.
- Payments may be automatically deducted each month on a pre-signed credit card form.
- Never allow the payments to extend past the treatment program, or at the very least, past 12 months.
- Provide the patient with a self-addressed, stamped, return envelope in each bill.
- Place a blank credit card charge slip in each bill you send out, so the patient can fill it out if he or she chooses to pay that way.
When setting up payment arrangements, be compassionate but firm. Your staff should explain your payment plan clearly, emphasizing that payment must not be missed and that it needs to be received by your office on or before the due date. It is of vital importance that you stagger the due dates of patient payments so your income is steady throughout the month. This will also reduce the weekly follow-up workload for your staff in billing, crediting, and collection phone calls.
If you stay with liberal credit and inadequate payment plans, you’ll be increasing the size of your monthly billing, your CAs’ job-load, and your accounts receivable. However, if you adopt a liberal payment plan, you will increase the office visit average of cash patients; and by making the care more affordable, you’ll attract more cash patients.