Is ZERO Accounts Receivables Possible?

by Feb 27, 2020Practice Finance

Accounts receivables are a rather taboo topic. If you have tens of thousands of dollars in accounts receivables, you may not want to share that, because “people” may think that you are clueless.

Ironically, if you have no accounts receivables, you may not want to brag about it either, because “people” may think that you are either bending the truth or someone without a heart.

Yet it’s fairly easy – in concept – to have little to no accounts receivables. All you have to do is explain to clients that “payment is due at the time of service,” and that a deposit should be left before any involved procedure is performed (dental, surgery, advanced diagnostics, hospitalization).

The whole concept is to avoid “being the bank.” As a practice owner, in the vast majority of cases, you should seriously question accepting payment plans and postdated checks. Many colleagues have tried to help out a needy client by being the bank and in many cases, they sorely regretted it, as they never got their money back. Unfortunately, the bad apples often discourage us from helping the “good guys.” Figuring out which is which is the tough part.

There are at least four ways to drastically reduce accounts receivables. Let’s pretend your estimate for Fluffy’s procedure is $800-$1,000.

Option 1: Many practices ask for half the amount of the low end of the estimate as a deposit (in our example, $400).
Option 2: Some practices ask for half of the high end of the estimate (or $500).
Option 3: Some ask for the entire amount of the low end of the estimate (or $800).
Option 4: And some practices ask for the high end of the estimate ($1000).

Which option you prefer and why could be debated for months. There is not necessarily a right and wrong option.

Asking for half of the estimate is a weird concept if you think about it. Of course, the idea is to seem nice or helpful.

But how does it help the client to pay 50% on a Monday morning and 50% at the time of discharge on Monday afternoon? Or how does it help the client to pay 50% on Monday morning and 50% on Tuesday after an overnight stay? Either they have the money or they don’t. Unless, of course, they get their paycheck in between – statistically a rare scenario.

In addition, if anything bad happens to the patient, even if you did everything right, the client may not be willing to pay the rest of your fees.

If you agree so far, that would eliminate options 1 and 2, and leave us with options 3 and 4.

Let’s say the final bill comes up to $850 (remember, the estimate was $800-$1,000). With option 3 (deposit of $800), instead of putting the uncomfortable financial issues behind and focusing on the patient and the discharge instructions, we now need to ask for another $50. That may seem awkward or greedy.

With option 4 (deposit of $1,000), you would have to refund $150, which does require an additional transaction, but certainly will make any pet owner thrilled. They get their beloved pet back, and a refund!

So option 4 may seem like an ideal compromise:

  • it enables you to eliminate accounts receivables
  • the owner knows exactly what to expect
  • it eliminates some phony excuses like “I forgot my checkbook” when it is time to pay the rest of the bill.

But veterinarians have big hearts, and there will always be exceptions. The “good client” who just lost his job and promises that he will pay for surgery after he receives his tax refund. The mother of five who promises to pay for her dog’s gastrotomy after she gets her next paycheck – next week. The owner who’s ready to do “whatever it takes” but only if you can “work with him.”

Incidentally, suppliers, the IRS, and especially team members tend to lose their sense of humor when it comes to getting paid. They don’t want to “work with you.”

Ultimately, eliminating or reducing accounts receivables is an important management decision. Choose a policy that you feel comfortable with, and stick to it as often as possible. As long as exceptions to the rule remain exceptions, hopefully everybody is happy in the end.

Phil Zeltzman, DVM, DACVS
Meredith Jones, DVM
Co-Founders of Veterinary Financial Summit