Debt Recovery

The quicker your business is able to collect on outstanding invoices, the healthier it will be financially. It’s better for cash flow purposes and saves money and headaches associated with trying to collect delinquent debts.

The AR turnover ratio is a standard metric used to determine the pace with which businesses are able to collect their debts. It isn’t difficult to compute and knowing your company’s ratio will give you a benchmark against which you can judge attempts to collect invoices more rapidly.

How To Compute Your Business’s Accounts Receivable Turnover Ratio

To compute this ratio you’ll need to know your company’s net credit sales and your average accounts receivable. These numbers are available on your company’s balance sheet.

To compute this ratio you’ll divide your net credit sales by your average AR. Here’s a bit more information on these two measures.

Net Credit Sales

This is the portion of your annual sales that are tied up in invoices. To compute your net credit sales you’ll take your total annual sales and subtract any cash sales, sales returns, and other allowances, such as price changes and discounts.

Average Accounts Receivable

This represents the average amount of money owed to your business as invoices at any given time. You’ll compute this by adding your accounts receivable amount from the beginning of the year to the amount from the end of the year. Then you’ll divide by two.

Let’s say you had $20,000 in AR at the start of the year and $35,000 at the end.

$20,000 + $35,000 = $55,000

$55,000 ÷ 2 = $27,500

This shows that your average AR is $27,500 for the year.

Computing Your Accounts Receivable Turnover Ratio

Let’s say that you had $150,000 in net credit sales for the year. And we now know your average AR was $27,500. To compute your AR turnover ratio we’ll use formula detailed at the top of this section.

$150,000 ÷ $27,500 = 5.45

Your accounts receivable turnover ratio is 5.45. This means that your AR turned over 5.45 times in the last year. To put that in terms that are easier to understand, divide the total number of days in the year by your ratio.

365 ÷ 5.45 = 66.9

This tells you that it took an average of about 67 days for you to collect on an invoice. To collect invoices faster, you need a higher ratio. As an example, had you found your ratio was double what it is, or 10.9, you would know that you’re collecting invoices in half the time, or in 34 days.

Now that you know your AR turnover ratio, what can you do to improve it?

Improving Your Accounts Receivable Turnover Ratio

A low AR turnover ratio can indicate poor collections policies and/or a larger than ideal percentage of financially irresponsible customers. For the health of your business, you should try to increase low ratios. Here are a few things to try.

Invoice Immediately

In order to collect payments quickly, it’s best to invoice while your work is still fresh in your customer’s mind. Send out invoices as soon as the work is completed. This shows you’re serious about your credit collection policies.

Include Early Payment Discounts and Late Payment Penalties

You can offer a small discount to entice customers to pay their invoices earlier than required. You might also charge a penalty for late payments beyond a certain point. If your terms are normally net 30, you might offer a 3% discount for payments made within 15 days.

Penalties shouldn’t be onerous. You don’t want to punish your customers. You only want to motivate them to pay. 1.5% interest per month that the invoice is late might be appropriate.

Give Your Customers a Range of Payment Options

Let your customers pay you however they see fit. This helps their payment processes and can get you paid faster. Offer links to online payment options directly within your invoice and also allow for credit card payments, checks, bank drafts, and more.

Take Deposits Upfront

An upfront deposit ensures that you’ll receive at least some portion of your total invoice. A deposit also gets your customer to put skin in the game, which increases the likelihood that the remainder will be paid on time.

Send Out Regular Reminders

Use an automated invoicing system to send automatic emails when your customers become delinquent. Oftentimes a friendly reminder is all it takes to get paid.

Stop Working With Problematic Customers

Customers that pay egregiously late on a regular basis will drag down your AR turnover ratio and cause constant problems for your business. Consider whether you might be better off not working with them.

The longer invoices remain unpaid, the longer your business can’t use that money to pay its own bills. Try these suggestions to get your AR turnover ratio higher. Your business will thank you.

Important Conclusion:

The turnover ratio is a measure of current liabilities and an indicator of a low collections model.

If the ratio is too high, means a business has very aggressive collections practices, which may drive new customers or even loyal customers to the competition.

Finally, it’s good to keep records of different ratios over different periods (months, quarters, etc) so the business can adjust its collections practices accordingly.

Businesses that are faced with collecting on delinquent invoices often don’t know where to begin. They tend to react with anger, the assumption being that the customer is intentionally trying to rip off their business. While this may feel warranted, it isn’t an ideal approach. A better assumption to start your collections process with is this:

Very few people don’t pay their debts simply because they don’t want to.

Most people aren’t criminals trying to steal from you. They have reasons why they haven’t paid. It could be that someone in the household lost a job or some other source of revenue dried up. They may have gotten themselves into debt and are now having a difficult time digging out.

Instead of pursuing them out of anger, it’s better to use a diplomatic approach that treats them like human beings, not deadbeats. When you consider their circumstances and attempt to open up a friendly dialogue you’ll enjoy collections success far more often. There a number of other reasons why a diplomatic approach is better as well.

Diplomacy Preserves Your Relationship

If you demonize delinquent customers and pursue them in a combative manner you’ll almost certainly sour the relationship. You might be able to collect what you’re owed, but you’ll lose any future business. This can be a penny-wise, pound-foolish decision.

Your customer’s circumstances will likely change. If they lost their job, they’ll find a new one. They may be having difficulty paying bills now, but that won’t last. If you approach them in a friendly, understanding manner, and work with them to find a payment plan that works for them, they’ll actually appreciate you more. Not only will you get what you’re owed by you could have a customer for life, promising significant future revenues.

Diplomacy Gets Your Customer to Call You Back

Customers don’t respond to anger and threats. If you leave a menacing message in someone’s voicemail you may cause them to retreat in fear and ignore future messages. They know they owe you money and in many cases, they don’t know what to do. Adding threats only compounds their problems.

On the other hand, leaving a calm, understanding message that stresses your desire to work with them to find a solution that they can afford gives them hope. It helps them to see that there is a light at the end of the tunnel. Their fear of repercussions is replaced with an optimism that they’ll find a way out of debt.

When someone feels you’re on their side they’re much more likely to call you back.

Diplomacy Is Easier on Your Collections Staff

The way we treat other people has an effect on how we see ourselves. Imagine if you had to spend each workday stalking and yelling at people that you knew were already down on their luck. It would take a toll on your psyche.

Taking a diplomatic approach to debt collection allows your staff to have conversations with people instead of threatening them. It lets them get to know your customers better instead of treating them like delinquents.

Instead of feeling like they’re chasing people down, your staff will feel like they’re helping people. And that’s because they are. Diplomatic debt collection is about helping your late-paying customers find a solution to their situation. It’s a positive process that benefits you and them. When your staff approaches the situation in this way they’ll report higher job satisfaction and you’ll experience less churn.

In the end, a diplomatic approach to debt collection is better for your business, your staff, and your customers. You’ll collect more debts, faster, and you’ll retain those relationships into the future.

In one of our previous blogs, Using a Revenue Recovery Service to Recover debt, we discussed the risk undertaken by a business extending credit to another business, or consumer, by providing services in exchange for a promise of “due and proper consideration”. In layman’s terms, this means that a company extends credit to a customer by issuing an invoice for a product or service already provided and then expecting payment of such product or service in the near future. In accounting terms, this process bears the name of ‘accounts receivable’.

In order to help medical practices and businesses monitor and control that credit risk, we have compiled this list of best practices for the management of accounts receivables:

1. Always state the terms and conditions of payment clearly in the contract, even when dealing with friendly patients or reputable companies. 

A payment provision ensures that the customer is aware of what happens should they default on the contract, and lists any fees, interest or penalties associated with non-compliance. In addition, it helps your business automate the accounts receivable process, especially when you tend to use the same payment terms for all your customers. In the case of a medical practice, checking a patient’s insurance and making sure they understand their co-pay and deductible during that first introductory meeting is paramount. Not only will they be more likely to have the payment readily available when they walk through the door for future appointments, but it will give them a sense of control and safety over their ability to pursue medical care and pay for it.

2. Do not assume that a future receivable is money in your company’s coffers now. 

One of the most important risks to a company’s growth and profitability is expecting money you don’t have yet and then using that as credit to take further risks. Even though a receivable is recorded on your balance sheet as a current or long-term asset, depending on whether the balance is due in less than a year or more, it carries a high risk of long-term debt to you or even an uncollectable account. Make sure your patients understand your billing policy by stating it on initial bills and later payment reminders, including details such as the billing cycle, any deadlines they must meet, the options to pay online or over the phone, any fees for the options, and the option to arrange a payment plan for special cases, if you can offer them. Offer incentives for patients to pay their high deductible in a lump sum.

3. Carrying the lowest possible level of bad debt involves having a sound credit policy and shortened collection periods. 

As a business owner, you have to extend credit only as far as your business can afford the risk. There is always an allowance for doubtful accounts, but don’t become negligent about how much you allow. One way of monitoring this is tracking a patient’s pattern of paying their bills to you. If you realize that a patient has a hard time paying some bills but not others, give them the benefit of the doubt. Do they tend to pay their bills more consistently when they receive their paycheck? When their kids’ school year starts so they don’t have to pay for childcare while they’re on vacation? Getting to know repeat customers with a periodic phone call can give you more insights into their situation, which in turn can help your business decisions about their account.  A human touch pays off.

4. Always verify the patient’s current address and contact information, as well as the best time to contact them. 

Otherwise, it will take you more time later to track them down, delaying a payment they might have made promptly if you were able to reach them quickly.

5. Never threaten to send your patient’s account to a collection agency except for cases when it is legally allowed and you actually intend to do so.

Medical collections fall under the purview of the FDCPA, which means, among others, that you can’t use an abusive, deceptive or unfair practice to threaten an action that you don’t intend to take, make a collection call before 8 a.m. or after 9 p.m. in the patient’s time zone, or call their place of employment if the patient has not given you permission to do so. There are many other legal prohibitions, for instance disclosure to a third party without their permission, such as to a daughter, neighbor, or baby-sitter that the customer has a debt, stamping ‘outstanding balance’ or ‘past due’ on envelopes addressed to your patient, or contacting the patient by postcard for the purpose of collecting.

6. Make sure you use the right codes. 

One of the biggest problems for health care providers is having a claim denied and then having to reprocess it. Codes are changed, deleted or introduced every year, and you can use “cms.gov” or “findacode.com” to quickly verify if you’re using the correct codes.

7. Understand when a decreasing total for accounts receivable is indicative of your practice’s good financial health and when you should worry.

You should see decreasing accounts receivable as good when your cash inflow increases. That means that the amount of debt owed to your company has decreased. The other side of the coin is when you decrease accounts receivables by writing debt off as forgiven or uncollectable. You should be able to deduct that on your tax returns, but having too many such deductions or listing them year after year should be a sign that you need to change the way you manage your accounts receivable.

8. Don’t ignore the importance of human error and staffing. 

Given the increasing trend of insurance companies to deny claims for the smallest of errors, you need to offer sufficient training and documented best practices and monitor how well staff applies them so you can rely on them to keep accurate records, track and correct errors, communicate efficiently, report issues and come up with solutions, use overtime only as strictly needed, and make other important day-to-day decisions.

9. Use the marketing methods that are at everyone’s fingertips these days.

This means not only word-of-mouth but also online tools such as Facebook, Instagram, Google Ads. Your practice can increase significantly by acquiring new patients. That being said, beware of public negative reviews and your response to them. Leaving a bad review unanswered will insert doubts into potential patients’ minds or confirm some borderline experiences they’ve had in your office. Your reputation as a sole practitioner is what can help your business grow or stay afloat.

10. Maintain clear records of your practice’s attempts to collect an outstanding balance. 

That will not only inform your decision to seek help from a debt collection agency or write off the debt, but it will also prove to the IRS that you made a reasonable effort to collect on a debt you intend to deduct on your taxes. You have to keep in mind that the debt is only deductible in the year the debt becomes worthless.

Finally, always remember that accounts receivable is different from a cash transaction in that the payment takes place at a later time.

For that reason, an unreceived payment carries a higher risk for the business awaiting the funds. The balance due from the debtor may take from a few weeks to more than a year to be received by the crediting business (i.e. the creditor), which may leave the creditor exposed. For medical practices, the risk is often even higher because of the hoops they have to jump through with patients and third parties, such as insurance companies.

These are all reasons why your business needs to invest in ways to manage accounts receivable to minimize the financial risk associated with them and convert them into solid cash sooner rather than later.

Invoicing is a critical part of the business cycle, but it’s oftentimes the most difficult. Customers expect to be billed for services rendered, of course, but that doesn’t mean they’re excited to receive them. Paying bills is almost universally considered a negative experience, and this is an association that’s hard to escape.

As a result, there’s considerable value in working to make your invoices as painless as possible for your customers. Not only will you find that this improves your customer’s experience of doing business with you, but it will also likely get your invoices paid more rapidly. Try altering your invoicing process to include these suggestions.

Switch to Digital Invoices

Most businesses utilize digital systems for their accounting needs. When you send a paper invoice, you add an extra layer of unnecessary complexity. Your customer has to manually input the details of your invoice into their system. And if they don’t do this immediately, they run the risk of misplacing your invoice and missing a payment.

In many cases, customers can automate the integration of digital invoices, which saves them time. Plus digital invoices can include direct links to online bill payment services, making it quick and easy for your customers to settle their debts.

Accommodate Your Customer’s Preferences

Most of your customers will appreciate digital invoices, but some may still prefer old-fashioned paper bills. While printing paper invoices and mailing them is more difficult for you, it may still be worth doing it if it makes things easier for your customer.

In general, it’s a good idea to try and accommodate your customers if they have specific requirements for their invoices. Sometimes this means including specific information or changing the order of things. The goal is to make it as easy as possible for your customers to pay you, so it’s worth doing a bit of extra work.

Offer Many Different Payment Options

Not only do customers have different payment preferences, but those preferences can change. As an example, a customer that normally prefers to pay using a credit card might opt to pay with a check if their credit card balance is unusually high.

Part of making it easy for your customer to pay you involves making as many different payment options as possible available to them. The more you offer, the more likely it is that each customer will have their preference available, as well as their standard fallback option.

Digital invoices make this extremely easy. As mentioned earlier, you can place direct links for digital payments directly in the invoice. Information for more traditional payment methods can be included in written form in the invoice as well.

Design Your Invoices for Clarity and Brevity

Customers prefer not to have to hunt for information on your invoices. You should work to ensure everything listed is necessary and clearly labeled. If you don’t already, you should include a brief description of the services or products supplied to make it easier for your client to link your invoice with specific purchases.

On that point, be sure to include your customer’s purchase order numbers on your invoices if they supply then to you. This is another way to help your customers match invoices to actions.

Make Sure Your Customer is Aware of Their Payment Terms

You likely have regular terms that you use with most of your customers. These can change, depending on your customer’s preferences and payment histories. Because one customer’s terms may be different from others, it’s important to list them on each invoice.

Not only does this make it easier for you to follow up on outstanding invoices, but it also makes certain that your customer knows when their invoice is due and any discounts or fees that may apply, assuming they pay earlier or later than their due date.

Don’t Sacrifice Customers Because of One Late Payment

As a business owner, you know that there are peaks and valleys. Sometimes you’re flush with cash and other times you’re struggling to pay bills. If you have a customer that is suddenly paying invoices late, talk with them. Don’t assume they’re suddenly irresponsible. There’s likely a good reason why they’re having trouble getting invoices settled. Try and work with them before resorting to more drastic measures.

If you immediately become combative you’ll likely lose someone that would remain a good customer once they get back on their feet. It’s better to reserve more severe measures for customers that consistently abuse their payment terms.

Try these suggestions and you’re likely to find happier customers and better cash flow as a result.

Medical testing labs face AR problems with patients and insurance companies. Labs all over the country hire collection agencies to recover amount from unpaid invoices after they have been unsuccessful for two or three billing cycles.

Need a Collection Agency for your Lab: Contact us

Patient Debt: Sometimes patients don’t pay their bills. This can be due to a lack of insurance, high deductibles, or other financial hardships. This unpaid patient debt can add up and impact the lab’s bottom line.

Reimbursement Issues: Medical labs often rely on reimbursements from insurance companies for the tests they perform. There can be delays in these reimbursements or disputes over the amount that is reimbursed. Additionally, if insurance companies change their policies and no longer cover certain tests, labs can lose a significant source of revenue.

Healthcare Policy Changes: Changes in healthcare policies and government regulations can unexpectedly affect medical lab revenue. For instance, changes in Medicare and Medicaid reimbursements can significantly affect a lab’s finances.

What kind of problems are these? 

In the medical laboratory, some tests are covered by a patient’s private insurance or the Laboratory Fee Schedule through Medicare. Others are either fully or partially covered by insurance or Medicare Part B, while some are not covered at all and have to be paid by patients out of pocket. And, just like in other areas of the healthcare system, there can be uninsured patients too whom labs run testing for. When a patient has a bill that is not covered by insurance or Medicare, it is the patient’s responsibility to pay, and, unfortunately, there is a certain parentage of patients who will not pay on time or at all.

What causes these debts? 

Many factors can cause these debts from the patient’s end, but there are a few specific things about medical testing lab bills specifically that make them difficult. First, lab tests are billed with the use of very specific codes that can be confusing or difficult to understand for the patient. Also, adding to this confusion is that many labs are entirely separate from the referring doctor so the patient may not recognize the name. This makes them more likely to challenge the charge and less likely to pay.

The second issue that arises with medical testing lab’s billing is that many lab requests are sent over without the patient’s social security number and sometimes even contact info attached. This can make it challenging to locate the patient or even find the right patient with that name to attach the bill to.

What can labs do about it?

The best way for medical testing laboratories to deal with patient AR problems is to hand the accounts over to professionals and hire a laboratory collection agency. A collection agency that has the experience and expertise working with labs to recover unpaid patient debt will be invaluable to labs and allow them to recover more of the AR, in a much faster time.

Laboratory collection agencies will be familiar with the specific billing codes that laboratories use and be able to explain that to the patient. They also offer things like skip tracing as part of their service. Skip tracing tracks down the correct person who owes a debt when there is invalid or incomplete contact information.

Also, while a laboratory’s billing department may be very familiar with all the rules and regulations around medical billing, they will not be as experienced with best practices around ethical debt collection. A laboratory debt collection agency will be equally familiar with all the HIPAA compliance regulation that is required in these situations as they are with complying to debt collection practices such as the Fair Debt Collection Practices Act.

Written Notices sent by a Collection Agency

Upfront cost for 5 Collection Demands is about $18 per account. Debtors pay directly to you, no other fees. Low-cost option. Good for accounts less than 120 days past due.

Collection Calls made by a Professional Debt Collector

Contingency fee only. No upfront or other fees. Agency gets paid a portion of the money they recover.  No recovery-No fees. Best for accounts over 120 days. A debt collector calls debtor many times. If everything fails, a possible Legal Suit if recommended by the attorney.

Conclusion 

Patient AR and billing solutions in the medical testing laboratory are under-covered topics. This is even though it can be just as big of a problem in this field as any field in the medical profession. It can cause the same issues and hurt the long-term financial health of a lab if not dealt with appropriately. A laboratory collection agency will help you collect old AR accounts for clinical billing, DNA billing, pathology billing, toxicology billing, and molecular testing lab billing. That is why hiring a laboratory billing collection agency is the right thing to do.

Businesses can have troubled relationships, much like people. When a contract is breached, inadvertently or on purpose, one of the greatest losses is trust. The process of building a business relationship consists of an investment of time and money but also of the risk of losing a portion of one’s market share, and thus, a risk of losing business. Any partnership carries with it the potential of mutual support and growth as well as the potential for corporate theft, loss of revenue, employee poaching, and more.

An entrepreneur doesn’t start a business with a distrustful mindset. On the contrary. Many business owners are full of hope, ambition and optimism. They may anticipate some obstacles, but with preparation, perseverance and a constant eye on the money meter, they can overcome them all to continue building a successful enterprise.

Just like a social contract, a business contract has some strict terms on paper, but, in reality, on-the-ground negotiations of the terms to fit business needs, slight modifications to adapt to changes, inconsistent payment schedules, and other breaches of the contract, all make the terms of the contract less absolute than they seem. Even so, non-compliance with the written terms doesn’t mean your business is in any danger if you still get your money and can support your business. When that doesn’t happen, the payment provisions of your contract become extremely important.

Need a Collection Agency for your Business? Serving Nationwide. Contact us  A cost-effective revenue recovery service with extensive experience in recovering money for companies while preserving your business terms with clients.

One of the most sensitive topics is keeping track of money. Business discussions often revolve around making and saving money, cutting costs and building upon wealth, but fewer tackle one of the embarrassing experiences of being in business: collecting money owed. A reason for that is that no one really wants to call out their business partners. Many still hope to be able to do business with them if the money issue is resolved.

However, when the stakes don’t involve just a temporary financial inconvenience or a negligible bad occurrence, but instead, go high enough where the cash flow of the business is threatened, the resources expended to cover the financial hole drain the company’s finances and staff. In that case, the impasse has to be addressed firmly and immediately.

A company’s Accounts Receivable is an essential part of operations. The people that run this department are not the money makers, but the treasurers, the ones who guard the money vault, so to speak. One of their duties is to ensure the company receives payment for their goods and services. When a customer or organization skips a payment or falls behind, Accounts Receivable springs to action.

What happens when it’s not just one customer or one business partner that hasn’t paid, but several, and Accounts Receivables can no longer keep up with demands for payment without the risk of ignoring or making mistakes in their other duties? What happens when they dread pursuing collections because it’s become their full-time job?

This is where hiring a collection company to aid in the recovery effort can make sense. Collection companies are not elegant or glamorous, and many have less than a decent reputation. The good ones respect their clients’ wishes and demonstrate a strong work and business ethic, fulfilling these essential activities. The debt collection process for businesses also depends on B2C or B2B debt.

These are some of the things a collection agency can do for you:

1. Take over delinquent clients and let you concentrate on growing your business.
2. Removing negative emotions and frustrations from your daily business activities.
3. As a third party, they will make the collection process less personal. You and your delinquent business partner might continue to be civil or even friendly.
4. Discretion and preserving one’s reputation are essential in a competitive market. A collection agency and its employees are bound by privacy laws and will not toot the horn of your precarious financial situation to anyone who listens. That will not only protect you from gossipy employees but also not aid potentially hostile takeovers.
5. Your collection agency will analyze your contract(s) and see where the breaches have occurred, if there are potential penalties or incentives that might be used to motivate the debtor to pay, and even help you better understand how to protect yourself in the future.
6. Collection agents are well trained in FDCPA and FCRA requirements and violations, in addition to state collection laws. Knowing the rules and regulations governing the process of debt collection is imperative but learning them properly may be time-consuming. Instead of having your employees take on that extra burden, you can outsource the debt collection process to someone who already knows them.
7. Hiring a lawyer to pursue collection can become very expensive. Our focus is on recovering what you’re owed and preventing costly litigation. Minimizing costs by hiring a collection agency when you’re already strapped for cash is a much better business move.
8. Your revenue recovery service will take over all the tedious aspects of collecting: sending formal demand letters and follow up emails, making phone calls, investigating the delinquent client, skip tracing, credit checks, asset verification, and more. And if you ever need to sue, the collection agency will have already gathered the evidence you need.
9. Revenue recovery services are familiar with the differences between various types of business, such as LLCs and corporations. Your collection agency analyzes how and whether any stakeholders in the delinquent company can be held liable for the company’s debts. While that may be a distasteful approach, it can be used as leverage.
10. Last but not least, a collection agency will have an interest in making sure you get your money back as soon as possible. While an attorney may require advance payments of legal fees and court costs, a collection agency receives a percentage of the debt owed to you. This means that the sooner they recover, the sooner they get their money.

When is the right moment to hire a collection agency to simplify your debt collection process? Normally, when the account has become past due. Your contract should have payment and non-payment provisions already included. If that’s not the case, make sure to include it in future contracts. When a client has promised payment over and over but the due date has come and gone, you have to take action. One of the worst signs is when a delinquent client denies any wrongdoing, any past due balances, and any obligation to comply with the terms of the contract.

If the number of your delinquent clients increases and you keep extending credit to your partners and feel as if there’s no end in sight, then you’ve waited too long. If anything holds you back, such as apathy, timidity, fear, etc, remember that the number one reason companies go out of business is that they run out of cash. In your case, the number one reason you may be running out of cash is that you haven’t been paid. So make that phone call now and get the help you need to stay in business.

Note: A revenue recovery service that reports bills for credit reporting must remove medical debts from the credit report of the patient once the medical bill is fully paid off.