The Hidden Costs of Slow Collections

If someone were to ask you what your job is, as a dentist, your likely response would be, “To care for my patients’ oral health.” But the truth is that you have two major roles when you’re in this profession: dentist and business owner. You are also an entrepreneur.

Regardless of whether you own one practice or several, you as a dentist understand that you don't just provide dental care, you also are running a business. And a big part of viewing your work with an entrepreneurial mindset is being strategic with your practice’s finances.

You are providing life-changing oral care to your patients, but patients are also “customers” who pay for the services your business provides. Sometimes, though, delays in payments happen, and these can impact your dental practice’s financial stability. Today, we’re going to talk about the hidden costs of slow collections, as having excess accounts receivable costs you more than just the money you’re waiting on from patients.

Low A/R Ratio Means Less Profit Overall

A myth within the dentistry community claims that carrying a high accounts receivable balance is a normal part of business. It is not, and that mindset is costing you money.

Why? Because patients are less likely to ever pay their bill the longer you allow them to sit on it.

When it has been several months, the value of the premier oral care you provided has now been lessened in the view of your patient. They’ve moved on with life, and they may prefer to avoid the unexpected expense now, when the need they once had for that dental care is not fresh in their minds.

We know, the bill for the services you provided shouldn’t be “unexpected.” But people forget things. And especially things like dental care, which unfortunately ends up on peripheral, perfunctory to-do lists all too often.

According to an article from the Better Business Bureau, “The dental industry usually experiences a recovery range of 15-20%, assuming the contact information is correct and the debts are 3-6 months old.”

Yikes.

The BBB goes on to say, “Unfortunately, age isn’t kind to accounts receivable. Accounts that are 90 days past due are worth 87 percent of their value, and the accounts that are 120 days past due are worth 33 percent of their value.”

You can see why we want to emphasize this point: Carrying a high accounts receivable balance is not a normal part of business. Seeing it that way is costing you a lot of money!

And the hidden costs of slow collections unfortunately do not stop there.

Time is Money

For every account that is past due, you’ve got a team member who has to spend time attending to that account, checking in and carrying out communications with the patient. You also have costs associated with paper, envelopes, and postage to send that reminder bill.

You might be thinking, “Oh big deal … isn’t that a few dollars, at most?” Yes, but multiply those few dollars by every time you send out a collections notice and for every patient you have to send these communications to.

Let’s say it costs you $1.00 total, for supplies and postage. If you have 500 patients in accounts receivable and you send two or more reminders to half of those 500 patients… well, you can do the math!

Now, $500-$1,000 might not seem like an incredible amount of money. But combine that with the time you’re having to pay your team members to handle collections communications, and the fact that you are bringing in less of the money the longer those past-due balances sit.

On this same note, your time could have been more valuable to a patient who would have paid on time. Not only would you have gotten paid the money you deserved, but you would have built a relationship with someone who is good for their intention to pay for services!

This is what we call a missed opportunity. One of the hidden costs of slow collections is that you might end up cycling through many patients who aren’t loyal customers if you don’t have a system in place to prevent this.

Inflation Matters, Too

While much less of a significant cost than anything else we’ve discussed, inflation is something to consider as well. If you treated a patient in August of one year and don’t get paid for it until the following May, you aren’t getting the value you could have. That service would have produced a higher bill in May, considering inflation.

And if you’d had that payment on hand in August, you could have invested that revenue, whether back into your business to cover salaries and other costs, or into your personal paycheck and goals if profits would be take-home pay.

And while inflation isn’t always a dramatic concern, it is right now. Bloomberg reported, as recently as January 2022, that, “The consumer price index climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data released Wednesday.”

You don’t want to miss out on the price adjustments that could have come with inflation.

We hope this has helped to paint a quick, clear picture of the hidden costs of slow collections. To recap, those are:

• Less profit overall, over time
• Wasted time
• Increased supply costs
• Opportunity loss
• Inflation imbalance

And if you’re now thinking, “Great, and what am I supposed to do about missing payments?” Well, we’ve got the answer to that, too: How to Improve Collections: 4 Tips