12 Simple Ways Dentists Can Improve Cash Flow
Cash flow is more important than most people realize. While many practices focus on production and profit, it’s actually cash flow issues that cause eight in ten business failures per Business Insider research. It can also make or break your dental practice growth. Let’s take a look at what it is, how it works, and what you can do to improve yours.
What’s Dental Practice Cash Flow?
Cash flow is the sum total of your cash inflows and cash outflows, or the money coming in and out of your dental practice.
Inflow refers to the money coming into your practice. Most commonly, this is payments from insurance companies and patients. However, there are other possibilities too. Maybe the dentist sells dental care tools through your website or participates in an affiliate program in which he gets cash when someone purchases toothpaste from his link. Perhaps he rents his office to another dentist after hours or gets bonuses from participating in a referral program. Any of these things, and more, can produce cash for your practice. They’re part of your inflows.
Technically speaking, loans are inflow too. They’re a cash injection into your practice even though you’ll wind up paying it back later.
Outflow refers to money leaving your practice. Rent, payroll, supplies, lab fees, and insurance payments are common examples. Loan payments and interest fall into this bracket too.
How Does Cash Flow Impact Your Dental Practice?
Generally speaking, your practice should strive for positive cash flow. Your inflows should be greater than your outflows. It means you have the cash on hand or liquidity to cover your expenses.
It bears repeating, though, that cash flow and profitability are distinct. Let’s say your practice clears $200,000 in profit this year, but this month your cash inflows are only $10,000 and your cash outflows are $20,000. Even though you’re running a profitable practice, you may not be able to cover payroll or order supplies this month because you have negative cash flow. This is why businesses unexpectedly get nailed by cash flow problems. It’s not just that you’re bringing in money. It’s that you’re bringing it in at the right times to maintain a healthy practice.
It’s also worth noting that negative cash flow for a period of time isn’t necessarily a bad thing. For example, you may have negative cash flow for a month if you invest in new x-ray technology or computers. Practices sometimes have negative cash flow when they’re growing too. After all, you’re responsible for payroll, supplies, and lab fees as those charges are incurred. Yet, it might be a month or more before insurance companies pay for treatment. As long as you have cash on hand to cover your expenses, short-term negative cash flow is not necessarily a bad thing and is to be expected from time to time.
How Can I Improve Dental Practice Cash Flow?
Simply put, increasing or accelerating your cash inflows and decreasing or slowing your cash outflows improves your overall cash flow. We’ll give examples of how to do that below.
Automation can decrease cash outflows by reducing labor and accelerate inflow by speeding up your processes. It can increase your inflows too.
For example, let’s say you automate your patient paperwork. This is easy to do with ThriveCloud because you can send patients their forms with just a couple of clicks and the data they enter automatically imports into the software. You can literally save hours every day, which means your labor costs can potentially go down.
Automating patient reminders is another big one. It reduces labor costs, is typically more cost-effective than old methods like postcards, and does a better job of getting patients in, thus boosting production to increase inflows.
Some ways to automate include:
- Patient payments (via portals or pay-by-text)
- Scheduling (via online scheduling)
- Online reviews (via an online review request tool)
- Practice marketing (via integrated ThriveCloud chair-filling lists and texting)
- Patient data backups and software updates
- Electronic prescribing
- Charting and note templates
- Insurance processes (more on this in a moment)
- Patient histories and consent forms
- Appointment reminders and confirmations
2. Make the Most of Electronic Insurance Processes
Most practices leverage electronic claims. It’s a great strategy that reduces time spent by four minutes per claim according to the latest CAQH Index. However, the physical sending of claims is only one component of your insurance workflow. You have multiple insurance processes. A hiccup in any one of them can delay payment or cause a claim to go unpaid.
To speed up insurance payments and make sure you’re getting paid fully, use a fully electronic insurance workflow that includes:
- Verification of benefits and eligibility (10 minutes saved)
- Electronic attachments like x-rays on claims and pre-auths (6 minutes saved per transaction)
- Claim submission (4 minutes saved)
- Claim status inquiries (14 minutes saved)
- Payment directly into your bank account (2 minutes saved)
- Remittance Advice (3 minutes saved)
3. Accelerate Patient Payments
Address the reasons why people don’t pay or are slow to pay to accelerate patient payments. The top reasons for non-payment (according to patient polls) and solutions are covered below.
- Could not afford payment (51%)
- Get insurance pre-authorizations.
- Follow up on late payments right away and offer payment plans if the patient reports an inability to pay.
- Thought balance would be paid by insurance (37%)
- Get insurance pre-authorizations.
- Provide clear estimates prior to treatment.
- Send patients a digital copy of their treatment plan
- The amount owed was unclear (19%)
- Review your statements to ensure the patient’s balance owed is clear.
- Provide patients with digital statements and/or a portal to check and pay balances online.
- Forgot to pay (16%)
- Send follow-ups as soon as due dates are missed.
- Make payments easy by letting patients pay online when it’s convenient for them. (It’s easy to forget when you have to call during business hours or cut a check.)
- Send balance notifications by text and email. About half of all patients will pay within an hour if you use their preferred electronic method, such as text or patient portals.
- Not sure when payment was due (13%)
- Ensure the due date is clear on your statements.
- Go digital, so it’s easy for patients to check balances and due dates.
- Send balance notifications via text and email. Again, about half will pay right away if you use their preferred method.
4. Increase Your UCR Fees
Around one in four dentists raised their UCR fees during the start of the pandemic according to the AGD. Although we’re not seeing the same trend just yet, that may be because most dentists review their fee schedules on an annual basis.
Take the time to review your UCR fees now and consider updating them if they’re not in line with what other dentists in your area are charging. Note that large hikes are not going to be taken well by patients who are already cash-strapped due to the economy. If you serve a low-income area and/or patients on fixed incomes, it may be better to leave your rates as-is to avoid losing them.
5. Reevaluate Your In-Network PPO Contracts
Many PPO plans pay notoriously low rates. Dentists are reporting that some have even sent notices to their providers that they’re lowering the rates even more due to their increased administrative costs! Run an analysis of your current plans. Compare the rates each offers and ask for increases from plans that pay less than others. Knowing the higher rates good payers offer is a strong bargaining tool.
If you can’t get the rates up, take a look at how much income you’re generating from different insurance companies and how much you’re writing off. If you’re generating enough because the volume is high, it may be worthwhile to continue with a low-paying plan anyway. If you’re losing money on a plan, you may want to look at dropping it. This information can be helpful when you try to renegotiate fees with insurance companies, so you may want to try negotiating with them before dropping them entirely.
6. Examine Vendor Costs
Take a look at key practice costs, such as supplies, labs, and software. If you have close relationships with your vendors, reach out to them and ask them if there are ways you can reduce your expenses. They’re dealing with inflation pains too, so they may not offer discounts, but they might be willing to work deals or help you find more affordable options.
We estimate that a typical practice can pay nearly $3,000 per month in software and tools, particularly if they’re using third-party services to automate reminders and market. By consolidating and moving to a more affordable choice that includes everything like ThriveCloud does, it’s possible to save thousands each month.
7. Minimize Inventory
Examine your inventory to ensure you’re not ordering and holding more than you need. Adjust your ordering process to reduce unused stock and keep more cash available for your practice. If you find you have excess inventory and equipment on hand that you aren’t going to use, consider selling it to free up the cash.
8. Be Ready for the Slow Season
Dental practices usually have some degree of seasonality. For example, many see an uptick in new patients and production during the summer when families relocate and need new dentists. Most see a surge in the last couple of months of the year as patients try to use their insurance benefits before they roll over. Yours might be somewhat different. For example, if you’re in a warmer climate, you might get an influx during the colder months as winter residents move in.
If you’re not already familiar with your practice’s cycles, pull reports to see when production waxes and wanes. You’ll want to stockpile some cash during the busier months to help you through the slower ones.
9. Have a Backup Plan for Cash
It may go without saying, but you shouldn’t wait until you’re short on cash to find a solution. Doing so can put you in a situation where you’re tempted to go with a high-fee/ high-interest option because it’s all you can get on short notice. Shop around now and at least be aware of potential cash sources you can tap into if you need them.
10. Set Goals and Maximize Production
Goal setting is linked to higher success rates according to Positive Psychology. It’s also associated with greater motivation, self-confidence, self-esteem, and autonomy. That means setting goals is helpful for both your team and your practice.
If you don’t already have production goals, set some and make sure they’re added to your scheduling software. That way, they’ll stay at the forefront of your mind and you can easily track how close you are to meeting them.
Also, make sure you’re maximizing production at every visit by taking x-rays as needed. See if patients with appointments scheduled or their family members need additional treatment too.
11. Keep the Team Involved
Make sure everyone on the team knows what they, personally, can do to improve cash flow. For example, those handling your ordering may not be aware of how increased supply costs impact your business. Those scheduling may benefit from reminders about the importance of maximizing production. It’s also helpful to hold a daily huddle to ensure everyone is on the same page. Read “5 Simple Steps to Holding an Effective Dental Team Huddle” to learn how to make the most of your morning meetings.
12. Don’t Stop Marketing
You may be tempted to cut back on practice marketing when money is tight, but that can actually make the problem worse by strangling practice growth. Use low-cost, high-return marketing tactics, such as email and text marketing, to boost production and increase cash flow. Now is a good time to focus on getting more online reviews for your practice too – they’ll help increase new patient appointments.
Improve Your Cash Flow with ThriveCloud
ThriveCloud is a practice management powerhouse. It comes loaded with tools like text, email, and online reviews, plus allows you to automate countless processes and accelerate payments. Plus, it’s priced considerably lower than any comparable software on the market today.
If you’re using ThriveCloud and want help with any of these tips, check out the videos in ThriveCloud University within the application or connect with our support team.
If you’d like to learn more about ThriveCloud or want to see it in action, request a complimentary demo.