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The age-old problem of collections takes on new steam in an economy like this one. An outstanding amount that seems manageable when business is good can be alarming when dentists' workloads--and payments--are sluggish. Here, laboratory owners give their take on basic strategies for keeping accounts receivable in check.
Strategy: Put Preventive Policies in Place
I get the impression that some dentists--like many consumers--overextended themselves when the economy was booming and now are having problems keeping up. During the last year or two, many of our clients have become slower to pay and our collection efforts require more telephone calls. And, for the first time in our 16-year history, we had clients with unpaid balances filing for bankruptcy--in fact, two of them within a week of each other.
In light of this, we decided to change our payment policies. As of last January, every client has to choose a payment preference: COD; automatic monthly credit card charge; or invoice, but only on the condition that we have a credit card on file to charge if he is more than 60 days past due. If customers want to take advantage of our 3% discount for paying within 10 days of receiving the statement, they have to pay by check.
The reaction has been mixed: some doctors filled out the sheet requesting their preference and returned it, no questions asked. Others told us to 'do what we always have,' and I had to call and let them know they only had those three payment options. By enforcing the policy, we hope to curtail any collection problems--and never see another customer bankruptcy again.
~Jeff Stronk, Owner, Treasure Dental Laboratory, Salt Lake City, Utah
Strategy: Make it Easy for Clients to Pay
For the past 18 years, we've promoted our AutoPay program, in which clients choose to have their credit cards automatically charged weekly, twice a month or monthly. We promote the program as a customer convenience, pointing out that it saves time for the office and also helps earn points for those with travel, cash back or other rewards cards.
Many clients rave about getting a few free trips a year because of their lab bills. And of course it's great for us, even with the necessary evil of paying a percentage to the credit card processing company. Since half of our clients are on AutoPay, we collect a significant amount of our receivables within a few days of generating statements.
Since the charges are put through automatically, our clients' trust in us is critical to the program. They know any questions they have about their lab statements will be handled promptly and fairly, so they're confident in reconciling the statement after the fact.
~Mary Tassi, Co-Owner, Tassi Dental Studio, Elmhurst, Illinois
Strategy: Don't Burn the Bridge...Unless You Have To
Obviously, the goal of collections efforts is to get the money you're owed without damaging the relationship, so the best thing to do is start with an honest conversation. For example, we once had a long-time customer who ran up a large balance for the first time. He explained that he was having financial issues, so we let it go for 90 days. When we still didn't receive payment, we told him in a very upfront, polite way that he needed to decide whether or not he wanted to maintain his relationship with our laboratory. As a result, he took a loan from his pension in order to pay off his balance.
But when dentists are unresponsive or belligerent, we'll take them to small claims court as long as the amount owed is under $2,000 (the small claims limit in my state). I've found it to be an inexpensive, easy method; it costs about $20 to file a suit and, many times, a doctor will choose to pay once he receives the summons rather than spend a day in court. A few times, I've used a collection agency when the amount owed exceeds the small claims limits; however, these agencies take anywhere from 20% to 35% of what's recovered.
~Marc Daichman, Owner Asteto-Dent Labs, Maplewood, New Jersey
Strategy: Minimize Your Credit Risk
Some laboratories ask new clients to fill out a credit application or supply trade references, but those strategies aren't necessarily indicative of a dentist's payment history with other labs. Most laboratories don't report to credit bureaus so you won't find any information there and, let's face it, a dentist isn't going to use a reference that's going to give negative feedback. However, you can learn a great deal about the payment habits of dentists in your area by networking with colleagues at association meetings and study clubs.
Another strategy to cut potential losses: set a credit limit for new customers until you're comfortable with their payment habits. We simply let the client know that, until we've established a history, we have a credit limit of $2,000; once he hits it, he needs to send a payment or we will only deliver new cases by COD. It can get awkward, but we have to ask ourselves, 'how much is too much to lose?'
Usually, if a practice demonstrates over a three-month period that it has control of its finances and we receive payments on time, we incrementally increase the credit limit. Of course, group practices have to be handled with a little more discretion to ensure that multiple doctors aren't collectively running up a large balance.
~Dale Chandler, CFO, Maverick Dental Laboratories, Export, Pennsylvania
Strategy: Be Stringent About Follow-Up
Collections are like advertising: you have to be consistent. We have parameters we follow in a very systematic way. Accounts re-ceivable are reviewed on a weekly basis and we follow up with telephone calls immediately, documenting every conversation or message we leave.
If those calls don't garner results, we don't hesitate to hold cases. For example, if I see that a dentist who's running up a large balance has missed a payment, I'll let him know we have five cases being completed next week but I can't release them without receiving the overdue payment. I was initially concerned about taking a hard line, but I've found if a customer is loyal, he will be responsive.
One thing I never do is blame the dentist. If he claims he never got my message, I remind him he received statements and invoices at the office but perhaps I should have his cell phone number so he can be assured he'll receive future messages. In one case, I had a dentist ask me to e-mail him regarding overdue payments and that has solved the problem.
If, after repeated telephone calls and holding cases I don't get anywhere, my attorney sends a demand letter; this costs $75 but works wonders. The letter tells the client to get in touch if he wants to negotiate a settlement; otherwise, I will take the next step, which is small claims court.
~Larry Borman, Owner, Tetra Dynamics, West Babylon, New York
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