Accounts Receivable: Manage Them or They Will They Manage You

Accounts Receivable: Manage Them or They Will They Manage You

Accounts receivable management is as important as any other part of a small business operation. However, it all too often takes a backseat to sales or day-to-day operations. Small business owners “do it all” and it is easy to feel good about your cash flow when new business is flooding in. However, if new customers fail to pay you, and if you have no plan to manage your accounts receivable, it does not take long for a small business to get in trouble.

This week, I took on a new client, a doctor who closed his practice because it was not profitable. He had all the markings of success: experience, reputation and patients willing to testify to the terrific results they experienced working with him. Everything was great- until it wasn’t. The sole reason the doctor’s business failed was because no one was following up on the thousands of dollars owed to him. After insurance payments and adjustments were processed, patients were billed for any remaining balance. Some patients paid quickly, but many did not. When the practice closed after only two years,  the doctor had nearly fifty thousand dollars due him.

Accounts receivable management could have made a difference

While the practice had strong billing practices, there was no plan to monitor outstanding receivables. No one was followed up with delinquent patients. Patients came multiple times without making any payment.

The first step to accounts receivable management to establish an aging report, which establishes how long each receivable is outstanding. While an aging report may sound complex and a bit wonky, with modern medical management software or accounting programs like QuickBooks, it is very simple to set up.

Once your aging report is set up, someone – you or someone you designate –  must monitor it closely. Develop a plan to follow up and stick to it. Many people shy away from asking people for money because they fear confrontation. It is easy to establish a process to contact people in a way that minimizes confrontation. You can draft a collection letter, or give staff a call script and rehearse it with them until they feel more confident. I know one small company that set one Friday a month for key staff to work together to follow up on aging customers. The team approach – complete with a pizza lunch – made the process much easier for all.

every  However, if you are not asking for your money, you cannot blame people for thinking that your bill is not important.

The aging accounts have now been placed with a collection agency and money is beginning to come in. The truth is that the practice could have recovered much of them money themselves. If the practice had made accounts receivable management a priority, it might still be thriving today.

It makes me sad to see a business fail, especially when the failure was preventable. The choice is yours – commit to accounts receivable management and grow your business, or ignore it and suffer the consequences.



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