Medical or dental practice expenses have to be paid — whether cash flow is strong or weak. Focusing on cash inflows and outflows can help ensure that your practice will have enough cash available to meet its ongoing needs.
Examine Cash Inflows
How long does it take to convert a patient visit or a medical procedure into cash in the bank? Because receiving payment for services in a timely fashion is a critical element in effective cash management, you want to be sure every charge is accounted for, recorded, and submitted for payment promptly.
Survey your past due accounts and identify where delays have occurred in receiving payment from insurers and patients. There may be places where you can tighten procedures to minimize the likelihood of payment delays.
For example, coding errors are the source of many denied claims. By training staff to focus on accuracy in coding, your practice should reduce the number of incorrect claims that have to be resubmitted to insurers. Consider setting time goals for your staff to submit clean claims after a service is rendered, and base bonus payments on your staff reaching these goals.
Have your staff check patients’ insurance coverage every time they have an appointment to ensure that you have the most up-to-date information. If insurer information is not constantly updated and verified, you could end up submitting claims to an insurer that no longer covers the patient.
Your practice should have a system for generating up-to-date information on the status of each outstanding account. These reports should include the date each bill was sent, the current balance, and the number of days delinquent. Your staff can use that information to contact delinquent patients on a predetermined schedule.
Finally, whenever possible, have your front desk staff collect patient copays, deductibles, and prepays at the time of service. You can make paying up front easier for patients by accepting debit and credit card — and possibly even online — payments.
Track Cash Outflows
Paying bills as soon as they are received may not be the most effective way for your practice to manage cash flow. An automated accounts payable system that organizes your payments by due date is preferable. However, if a vendor offers your practice a discount for early payment, you will need to take that factor into account. Rent, utilities, and key suppliers should be paid before your practice pays bills with more flexible terms.
Consider renegotiating vendor contracts. You may be able to negotiate with certain vendors for longer payment terms — extending payment terms from, for example, 30 days to 60 days is equal to receiving an interest-free loan. Schedule a meeting with key vendors at least yearly to identify where they may have some flexibility in reducing their charges for supplies or services. You can always look for alternative vendors if your current ones seem unwilling to bend on prices.
Finally, review other areas of your operations to see if you can reduce costs. If you have any outstanding bank loans and are in a cash flow crunch, ask to renegotiate for more favorable terms.
Cash flow is crucial to your practice’s financial health. If you have had periods in the past when cash flow has been tight, take a look at what created the issue. We can help you review your current cash-management practices and suggest potential improvements. To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.
As we approach the new year, it is a good idea to examine and review a financial health checklist and make changes as necessary. Here is a list of some of the items the CIG Capital Advisors Wealth Management team recommends you review as part of your resolution for better financial health in the new year and to help establish good personal finance habits in the years to come:
- Review and update beneficiaries. Confirm who is designated as your beneficiaries on your retirement accounts. For many people, naming beneficiaries happens one time, when they set up the account or policy. However, life changes (birth, marriage, divorce, death) are inevitable, and when these changes occur, you, or your family, may find that the designated beneficiary on your retirement account is not who you think it should be now.When it comes to planning for wealth transfers, it’s extremely important to review your beneficiaries periodically, especially if you have had children, divorced, or remarried since you first established your retirement account. This also applies if you had previously named a charity or trust as your beneficiary upon account setup and that organization no longer exists.
- Review and/or prepare for Required Minimum Distributions (RMDs) If you’re 70½ or older, you’re required by the IRS to take RMDs from certain retirement accounts by December 31—or face a penalty equal to 50% of the sum you failed to withdraw. If you turned 70½ this year, you have until April 1, 2020, to take your first RMD, albeit with potential consequences. Additionally, if you will be turning 70½ soon, now is the time to review your distribution strategy.
- Retirement Plan Contribution Increase. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is increased from $19,000 to $19,500 for tax year 2020. Consider reviewing and changing your contribution limits if appropriate.
- Review Living Wills and Trusts. Most often people wait to do their estate planning and draft a Will until they absolutely have to, which is often after they have children, get married, buy a house, start a significant business or have a spouse or family member convince them of its importance. If nothing sudden or significant has happened such as the birth of a child, divorce, marriage, death of a family member, change in jobs, or change in your balance sheet or assets, then a good benchmark for reviewing your estate plan is once every five years. Otherwise, it’s a healthy habit to do a general review once a year.
- Revisit Tax Withholding. Changes in dependents, income and marital status can all affect your tax bill. Use the IRS’s withholding calculator to ensure you’re withholding enough—but not too much.
- Check your credit reports. Under the Fair Credit Reporting Act, each of the national credit-reporting agencies is required to provide you with a free copy of your credit report, upon request, once every 12 months. Get yours at annualcreditreport.com.
- Review your insurance needs. Make sure your loved ones and the things you’ve worked so hard for are protected. Ensure that there are no gaps in your home, auto, business insurance coverage.
Resolve to get take care of your financial health in the new year. To get assistance with a complete, holistic review of your financial plan, contact a CIG Capital Advisor to schedule a brief introductory call today.