Yes I know you have always been told, by your accountants and fellow practice owners, to take cash only (cash, checks, credit cards), never allow your clients to pay you over time, extend credit. Well that era is over if you want to grow your practice. Do you honestly believe that you can continue to raise your prices when your clients do not have pet insurance and all the economic statistics are growing against the consumer being able to pay for your services? You need to gain new clients to increase revenue not increase your fees.
As I explained in my post “Your accountant does not know everything”, the industry must change to grow. The old traditional A/R is no longer effective. Therefore, the need to have an effective accounts receivable (A/R) system is paramount to a successful business in the future. Here are the five ways to an efficient and effective A/R system or what I call the 3P system (Payment Plan Processing):
- You must bill electronically. The old traditional A/R system of mailing invoices is no longer efficient and/or effective. The most cost effective and efficient method of collecting on your A/R is to electronically draft your client’s bank account or credit card. Electronic payment processing greatly increases payment compliance. If your client does not allow electronic drafting from their account and/or they are one of the unbanked, no credit card or bank account, obviously you cannot offer a payment plan. I cannot emphasize enough how important it is to make sure you get all the personal and financial information from your client when offering them a payment plan, especially an email address. It is more efficient to communicate with your client by email than by the USPS. This improves the timeliness of receiving payments in an expedited manner. In addition, having an email account also allows the professional A/R management companies, if it becomes necessary, to skip trace a deadbeat client on social media.
- Offer multiple payment options. To increase payment compliance you must offer your clients many options to pay. From debiting a checking, savings account or a credit card and allowing them to make payments via the web and/or by phone. You must allow for multiple debit dates through-out the month so your client can select a payment date that best matches when funds will be available. Also, allow for monthly and bi-weekly payment plans. Remember, many of your clients may get paid on a bi-weekly basis, meaning you can get two to three payments per month instead of just one.
- Set clear policies. What is the minimum dollar amount that you will allow a client to have a payment plan? What services are allowed to utilize a payment plan? What is the maximum length of time for a payment plan? I recommend that a payment plan be used only for services and not for retail purchases. The dollar amount is totally subjective. We receive payment plans from $75 to $11,000. As for the length of the payment plan, most practices offer anywhere from 3 to 12 month plans. However, 24 to 36 month plans are also being offered and with success. These practices have the philosophy of offering a longer term to lower the payment amount to make sure their client is comfortable with the arrangement, therefore payment compliance will be higher. A lot of your policies will depend on the demographics of your community. Do not be afraid to set the policies and stick to them. You cannot please 100% of your clients.
- Maintain a healthy working relationship with your client. Happy customers are more likely to pay their bills. If your client is short on cash one month, they will pay the bills of those companies with whom they have a positive relationship with. If you want to avoid late paying clients, strive to fulfill your obligations by developing a strong working relationship with all your clients. This will increase client retention as well as keep your payment compliance high. You must do your part to communicate with your client after the procedure. Either by a combination of phone call(s) and email follow-up(s), reminders for the next appointment and newsletters. Keep your clients engaged. If they feel like they are part of your family your payment compliance will remain high.
- Hire an outside company. Managing your accounts receivable can take a great deal of time and energy. One way to reduce your staff’s workload and increase cash flow is to hire a professional A/R management company. Having your accounts receivable professionally managed is no different than the other services you outsource. They are better equipped to handle the task; a task that you do not have the tools or the experience to handle on your own. They will also have the necessary security protocols in place to protect your data.
• Your accountant does not know everything