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5 steps for improving cash flow at your dental practice.

This may come as a surprise to some dentists, but the biggest threat to a dental practice’s long-term success is not a lack of profit. It’s a lack of cash flow.

A dentist that collects an average of $75,000 a month, for example, will see $27 million move in and out of the practice’s bank accounts over a 30-year career. But the flow of cash is not always even, and it’s not always enough. That "multi-millionaire" dentist could still run in the red some months and end up on the short end of the financial stick when retirement looms.

Slow and non-paying patients are often a big reason why. There are many things you can do to help keep cash flowing in a dental practice. Here are five of them:

1. Scrutinize your cash-flow statement.

Dentists often prefer to delegate cash management activities to others so they can focus on patient care. But it’s still important they know where they stand financially at all times.

Having enough cash on hand to pay the bills requires estimating income and expenses over a period of time and planning how to deal with any expected shortfall. You’ll be more likely to pre-empt problems if you can accurately predict cash flow for the next three months.

2. Establish payment and credit policies.

Dentists sometimes forget that credit is a courtesy – not a requirement – of doing business. It’s important to establish clear payment and credit policies and communicate them up front to patients.

You must also enforce these policies consistently, reminding patients sooner rather than later if a bill is past due. If patients see that you are lax in your collection efforts, some will stretch your patience – and your cash flow – as long as you allow it. Teaching patients your expectations can help avoid difficult collection situations.

3. Use technology to your advantage.

At many dental practices, money is coming in, just not fast enough. In some cases, the practice itself is partly to blame. You can help speed the collection process by using your bank’s lockbox service. By having customer payments sent directly to your bank, you can ensure funds are deposited on the same day they’re received. That eliminates the typical two or three day lag you might otherwise experience.

When was the last time you had a merchant services check-up? Advances in the payment processing industry have made speeding up cash flow easier with next day funding. Many clients prefer to pay with plastic, so make sure they have the ability to make payments on your website as soon as they receive a bill. A perk to this mode of payment is the accompanying reporting tools offered for your convenience, which makes balancing and reconciling your receivables easier. Subtle changes in how you process plastics can save you money and help control the fees you are being charged.

4. Enhance your payment process.

You can improve your cash flow even more by revamping your payment process. One way is to request payment authorization for the amount the customer will be responsible for right at the point of care. An updated payment process may enable your practice to eliminate back end billing, as well as the confusion it can create among patients who aren’t sure if or when to pay a bill. This not only has the potential to improve collection rates, it can also reduce an office’s administrative workload.

Extending credit to your customers is a strategic decision to increase billings while recognizing that some patients do not have the capacity to fully pay at the time of their treatment. However, not all patients should be extended credit if you expect your default percentage to be high. Developing and adhering to a financing policy allows for longer term repayment, making treatment more affordable and building goodwill with your clients. Risk parameters should be built around the stability and creditworthiness of the client. One way to gauge the risk of a patient is to pull credit reports on a client with long term repayment needs. A credit grading system (such as ZACC) is a tool that can help with patient financing.

5. Keep your banker up to date.

Your bank can help you more quickly if you’ve kept them apprised of your financial situation and challenges. For example, a line of credit can help even out cash flow when your practice experiences peaks and valleys in payment. In some cases, you might be better served to restructure an existing loan or consolidate debts to reduce current payments.

The best time to talk to your banker, of course, is before cash flow begins to slow. The better your banker knows you, the better able he or she will be able to recommend solutions that keep your practice running strong.