Reducing Days Sales Outstandings for Practices

November 18, 2020

Typically calculated on a monthly basis, days sales outstanding is something all those in practice management should be aware of. This number measures the size of outstanding accounts based on average sales days instead of units of currency. The DSO can be quickly calculated by dividing the total of accounts receivable from a certain period of time by the complete sum of credit sales during that same amount of time, then dividing the answer by how many days were in that period.

Investing Answers suggests the DSO is crucial because it is a measure of how quickly a company collects money, which directly correlates to the efficiency and profitability of the company. A medical practice is no exception. Comparing the DSO of several practices can show which ones are better at managing credit and efficiently using receivables to foster growth. A practice can also compare its DSO numbers over time to tell whether it is becoming more or less efficient. 

Ways to reduce the DSO for your practice

If your practice has a high DSO, there are several ways both the staff and patients can help lower it.

Examine customer payment terms

A practice with looser payment terms generally has a higher DSO than one with very strict terms. How long do patients have to pay a bill once they leave the office? Is payment required at the time of service? Establishing a balance of common industry standards, the DSO of your practice and the needs of the patients can help pinpoint the necessary terms to offer. 

Switch to automated billing

Particularly for practices with a high ratio of patients to staff members, it can be a good idea to have an automated billing process. This helps ensure bills are sent out on time and do not get lost in the shuffle. Simply put, the faster patients receive a bill, the faster they can pay it. If your practice still sends out paper statements and bills, you may want to consider electronic billing. Online invoicing and billing make it possible for a patient to receive and pay a bill the same day it is sent out instead of days or weeks later. This method also allows payments to be easily tracked as opposed to checks and payment stubs that can be more labor-intensive to monitor. 

Pay attention to invoicing

Even if your billing is already automated, it is important to be detailed when inputting patient and invoicing information. A bill sent to the wrong patient or address will not get paid. Are the invoices accurate and being sent out on time? Even small errors in amounts due or account numbers can end up costing the practice significant amounts of money. Spot-checking invoices is a good way to find and fix common errors that can delay payments and increase the DSO. 

Offer multiple methods of payment

The fastest way to get paid is obviously to ask the patients for payments upfront. However, there are cases where patients may not be able to pay the full amount at once and need to spread out payments. Rather than sending out monthly statements and bills and relying on the patient to mail a check or call and make a payment over the phone, consider having an online payment portal. A well-planned internet payment system can allow patients to view statements and make payments quickly and easily. The less work involved with paying a bill, the more likely and faster a patient is to pay it. 

Consistently follow up with patients

Following up can be one of the most effective ways to make sure patients do not ignore invoices. Email reminders and text message reminders typically work well, and phone call reminders can be even better because of the personal touch of talking directly to another human being. This can be particularly helpful with bills that are past due. To keep your practice’s DSO where it should be, which is ideally 10-15 days beyond the terms of sale, staff members need to be proactive about sending reminders or making phone calls. 

Offer incentives

Far from costing the practice money, offering early payment discounts can be a smart way to keep cash flow in the practice instead of tied up in accounts receivable. It can be a win for both the practice and the patientd, because the patients pay less and the practice gets the capital sooner. Having a faster cash flow, getting better rates from creditors, and saving interest on loan fees are just a few ways receiving faster patient payments can improve the balance sheet of a practice. Charging a late payment penalty is another option to help offset some of the costs the practice incurs when the billing moves to a collections department. 

Stay committed

Lowering your DSO does not happen overnight. If your goal is to reduce it by 20 days, it can take several months to see significant progress. While it can be motivating to see that number drop, the initial excitement of making a difference can wear off quickly. Effecting significant improvements and sustaining them long-term requires a change of habits in everyone from the executives to the billing department. Setting expectations for the staff regarding accounts receivable and regularly discussing DSO metrics can help maintain focus and ensure all the effort put into lowering the DSO is not wasted. 

We can help you improve practice management

There are many ways to take your practice management skills to the next level. The team at Doctor Genius knows just how crucial it is to stay competitive in today’s environment and understand how tips on strategies such as cost accounting, establishing relative value units, and lowering DSO’s can have a tremendous impact on the profitability of your practice. We at DG are happy to lend our services so you can focus less on patient acquisition and retention and more on the growth and development of your practice. For more information on what we can do for you, call us today.

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