I think most people assume that accounts receivable is bad and their practices shouldn’t have any accounts receivable. But let me ask you a question: who owns the largest buildings in any city? The answer is banks. And what is it that banks do? They lend money, of course. So maybe we need to reconsider accounts receivable as more of a marketing tool for our practices. Let me explain. Suppose you had a long-term client whose pet needed to have its teeth cleaned. You tell the client that the total cost will be $500 and the client responds that they will to have to think about the procedure first. What they are really saying is that they can’t afford it, but they may be too embarrassed to say that to you, so they don’t have the procedure done.

Now let’s consider a different way of handling this situation. Suppose that, when you review the medical care plan with the client, you acknowledge that $500 is a lot of money and let them know that you can also offer a payment plan. The client can either apply for Care Credit and do 90 days same as cash, or they can pay you one third at time of discharge, one third a month later and the final third 30 days after that. Don’t wait for clients to ask you for a payment plan, because they won’t – offer it up front. I have several practices that have initiated this policy and their dental revenue has dramatically increased as a result.

I would not offer this to all your clients; I would be selective. But if you have a client who has been coming to your practice for years, has always paid their bill and is now faced with a large expense for their pet, then, yes, I would extend credit to them. Your biggest risks for non-payment are first-time clients and emergencies; I would certainly be careful in extending credit to these clients.

I also think that many practice owners and managers spend way too much time on accounts receivable. There are much more productive things a manager could and should do in the practice rather than spend the day in small claims court. To avoid this, I suggest you develop an internal credit policy and an internal collection policy. The internal collection policy states under what terms we might extend credit to a client and who has permission to do that. The collection policy states what is to happen if a client does not pay the practice. A typical collection policy might read as follows:

  1. If an account is not paid in full, the client will be sent a statement at the first of the month stating the amount due and a service charge of 1.5% (minimum $5.00) will be affixed to that statement.
  2. If the account is not satisfied in full thirty days later, a second statement along with a first collection letter will be sent to the client and additional service charges will be assessed.
  3. If full payment is not made within 15 days of the last statement, a phone call should be made to the client requesting full payment or a payment agreement will need to be signed.
  4. If full payment has not occurred 15 days later, a third and final statement will be sent to the client along with a final collection letter and a service charge will be assessed.
  5. If the account remains uncollected 30 days after the final collection letter has been sent, the account will be reviewed for collectability. If it is deemed collectable, it will be sent to a qualified collection agency or lawyer, and if not deemed collectable, it will be suspended for later review (you have up to seven years to collect on an account).

If you have not collected on an account after 120 days, you are probably not going to, and you need to turn the account over to people who do this for a living and let them handle it. The longer an account is owed, the less likely you are going to be able to collect on it. I know for some, this will seem counter-intuitive, but I could name 50 things that I would rather see a manager or practice owner do than sit in small claims court for the day. I think, for many, accounts receivable is taken too personally – “the client said they were going to pay me!”. When the client fails to pay, the manager or practice owner feels duped and collection then becomes a matter of principle. Unfortunately, you need to realize that accounts receivable is a cost of doing business, but spending too much time on accounts receivable will only make a bad situation even worse.

If you are a small animal hospital and your total accounts receivable are between 1% and 3% of your gross income, then you are fine. If you are at less than 1%, then maybe you should be taking more risk, and, if your accounts receivable are more than 4% of gross, you probably need to dial it back. You can view our samples of first and final collection letters that you could use in your collection policy.

Mark Opperman, CVPM
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Mark Opperman, CVPM lectures throughout the country, teaching veterinary teams and owners/managers how to better run their practice. See the It’s What’s Up Front That Counts! seminar schedule to see where you can catch Mark next.