In 2023, 81% of businesses reported having an increase in delayed payments. A healthy cash flow is the most important factor when running your own business in any industry. Without it, you are at the risk of having to close up shop. This is especially true in the healthcare industry. That’s why accounts receivable (AR) is such a vital process to boost within your revenue cycle management (RCM) system.
I’m throwing a lot of terms at you already, and that was just in the first paragraph.
So if you aren’t quite following what I’m saying, let’s pause and go over what these terms mean. First, RCM is the process of tracking the revenue of a patient from the beginning of their healthcare experience to the end. The end is their final payment (hopefully).
That final payment happens during the AR portion of the cycle. AR is the money owed to a business after they provide goods or services. So, for healthcare, this is usually money owed by patients and insurance companies.
Lack of accounts receivable management can easily derail your RCM process and ability to stay financially healthy. So today, we are going over 12 tips on how to improve your accounts receivable management processes. Let’s get started!
Table of Contents
1. Automate Accounts Receivable Processes
First, we highly recommend you automate any processes that you can in your RCM system. Automating the most tedious tasks saves time and allows your team to focus on more pressing matters. Such as following up on late payments and communicating with patients to set up payment plans.
This can include tasks like sending out reminder emails and phone calls. You should look into this for anything that is otherwise repetitive and time-consuming. Making sure all parties are on the same page with payment expectations and deadlines is critical. Having automation as a part of your process allows for quick and easy communication with your patient. Leaving little room for misunderstandings.
2. Set Clear Expectations from the Start
Speaking of avoiding misunderstandings, this is the perfect segue into our second tip! Set clear expectations with your patients from the beginning. Your billing procedures should be clear and consistent. Be sure to document your process for your team to refer to, as well. This is helpful if any questions arise either from your team or the patient. Your process should include:
Billing periods.
Invoice dates.
Record keeping procedures.
Information to include on each invoice.
Collection for overdue payments.
Spelling out your billing and collection policies before rendering services is best. This way, you and the patient can stay on the same page throughout the entire RCM process.
3. Simplify Payment Options
Providing your patients with multiple payment options is the next tip. This opens the door for patients to make payments in the way they see fit. Which fosters a sense of understanding and control over an otherwise annoying task.
No one wants to pay medical bills, so you might as well allow your patients to pay however it makes the most sense to them! Whether this is through a credit card over the phone, or a mobile wallet online. The easier you make patient access, the higher the chance you will receive payments.
4. Offer Early Payment Discounts
Consider offering your patients an early payment incentive discount. Such as a 2/10, net 30 discount. This means that if the patient pays their balance within 10 days instead of 30, they get 2% off the total. This extra incentive can sometimes speed up the receivable process. Remember that you cannot advertise prompt payment discounts in advance. Also, every patient must have the opportunity to partake in this discount. Regardless of diagnosis or length of stay.
5. Follow-Up Immediately on Overdue Payments
Within your billing process, make sure you have documentation on how to handle overdue payments. Create a system that flags down these overdue balances, and if possible, sends automated follow-up reminders to patients. The longer you allow these bills to go uncollected, the more difficult the task becomes.
Contacting the patient the first day after the due date is best. Then, you can send reminders periodically after that. Having different methods of communication can also help you reach your collection goals faster. Don’t leave your correspondence up to snail mail only. You can try phone calls, texts, and emails when trying to get a hold of your patients, too.
6. Use the Correct KPIs
Key performance indicators (KPIs) are metrics with which companies measure the performance of a specific objective. So, an AR KPI helps to quantifiably measure your receivable performance over time.
Examples of KPIs to use include:
Days Sales Outstanding (DSO).
Average Days Delinquent (ADD):
Accounts Receivable Turnover Ratio.
Collection Effectiveness Index (CEI).
Revised invoices.
7. Train Staff to Manage Accounts Receivable
Involve all teams in your company with the management process of AR. This helps keep everyone on the same page when it comes to the important task of cash collection. It is not only the accounting team that needs to think about ways to make AR an easier process.
Client-facing teams, such as sales and customer service, have a responsibility in this multi-step process, too. Not only should they be setting expectations for your clients about your billing and collections policies. But also, be sure to train your staff to perform their best during all critical collection touchpoints, not just the final one.
8. Diversify Your Client Portfolio
Have you ever heard of the saying, “Don’t put all your eggs in one basket?” Well, this next tip plays off that saying a little bit. Essentially, don’t reduce your dependency on a few large clients. It is more fruitful to have a mixture of both large and small clients. Smaller clients offer faster payment cycles to stabilize cash flow.
9. Monitor Accounts with Aging Reports
Creating AR aging reports helps to identify any overdue invoices that are still outstanding. Help better streamline your AR workflow by implementing a process that tracks and measures the payment status of your patients.
These aging reports group outstanding accounts in the following buckets:
0-30 days after the issued invoice.
31-60 days after the issued invoice.
61-90 days after the issued invoice.
More than 90 days after the issued invoice.
By categorizing these invoices in this way, you can better prioritize your follow-ups. As well as better choose what methods to use to reach out.
10. Set Up Collection Procedures for Delinquencies
In case of delinquent invoices, have a clear protocol outlined for your team to follow. If enough time goes by with no response from your client, it may be necessary to work with a collection agency. Of course, you don’t want to make a hurried decision to do this.
People go through hard times, or perhaps they just haven’t been getting your messages. So be sure to make sure you exhaust all other protocols used for overdue invoices first.
11. Implement Payment Plans When Necessary
As I mentioned before, clients may be struggling to make their payments due to other more pressing financial responsibilities in their life. Offering structured payment plans with clear terms and conditions can help both you and your patient.
Breaking up recurring payments into more manageable bite-sized amounts makes things less overwhelming. This will likely increase the probability of you getting paid promptly, as opposed to demanding they pay the balance all at once.
Getting small portions of your receivables is better than none. It only will strengthen the professional relationship between you and your clients, giving them more than enough reason to continue frequenting your services.
12. Implement a Late Payment Penalty
Finally, consider implementing late payment penalties. Charging interest on late payments is nothing new, but if you haven’t started to do this yet… I would start now. This is simply a further incentive for your client to work with you and get you to your revenue goals faster.
Make sure you include this in your billing and collection policies, which you need to give every client upfront. Remember, avoid easy misunderstandings through thorough documentation!
Conclusion
When it comes to your company’s balance sheet, there are plenty of important line items. But none as important as accounts receivable. Maintaining a healthy cash flow is key in any business. The shorter the time your company has AR balances, the better. By implementing the tips above, you can continue to strengthen your cash flow and collect your assets in a timely fashion. Fortifying your RCM system in one of its most vulnerable stages.
