Profit 101
How many times have you said to yourself that there are not enough people in your business office to adequately do the work you feel needs to be done?
Or maybe you feel the addition of a new or updated computer system would make your employee’s jobs much easier and more productive.
Ideally, you would like to hire all the people you need, pay good wages and purchase adequate equipment and technology. Unfortunately, in the real world it’s easier to get rabbits out of hats than it is to get more employees, higher wages and better technology. You earn your keep by doing the best with the resources you’re given. If it were easy, anyone could do it. You have the unenviable task of making sure you’re doing the best possible job with the limited resources available.
So, are you doing the best possible job? In the school of medical receivables management, are you passing “Profit 101”?
Accountants love to run Cost/Benefit analyses to ensure that more money isn’t being spent than is necessary for billing and collection activities.
For instance, if you send out statements on an account for months and months and there is no response, at what point have the costs exceeded any possible recovery?
How may calls should your employees make on a $100.00 account? How many calls on a $1,000.00 account? Each day we talk to medical managers who ask us these kinds of questions. Most admit that they err on the side of holding accounts too long and overworking those accounts rather than move them on to the next prescribed step. It seems to be pride of ownership issue.
Many medical receivables mangers we talk to admit that they are overwhelmed by having many more accounts than they could possibly handle given the limited resources they have.
What does it cost in postage, forms and people expenses to keep an account on your books? When you’ve answered that, factor in the variables that the collectibility of an account decreases as it ages. For instance, by the time the account is nine months old, it is likely worth about ten cents on the dollar.
Now, you have a formula that con help you decide when to realistically write off your accounts. Use your employees to work current, collectible accounts; the ones with the most promise. When the accounts age and costs reach a predetermined point, say “goodbye!” and move the account out. We’ re not being self-serving here. If you hold an account too long, no one can collect it. You’ve lost out on any possible recovery.
It continually amazes us that the decision to write off accounts to bad debt is made many times by looking at the allowance for bad debt. Often there may not be enough allowance on the balance sheet to accommodate the accounts that really need to be written off. So, then these accounts age and quickly lose their value.
The really amazing part of this is that by not writing off accounts because of Balance Sheet/Income Statement concerns, the provider is actually reducing their income by keeping un-worked accounts in-house.
There is no profit in holding accounts. Work them or move them.
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