Chapter 18: Accounts Receivable Notes

Accounts Receivable

Objectives

  • Explain insufficient funds charges.
  • Describe the process used to accept payments on client accounts.
  • Define and enforce a no-charge policy.
  • Calculate finance charges.
  • Describe the process used to collect outstanding accounts receivable effectively.
  • Define the Fair Debt Collection Practices Act.
  • Develop effective collections letters.

Understanding Accounts Receivable

  • Accounts receivable is defined as money owed to a business for services rendered or products that are sold and not paid for at the time of service.
  • Accounts receivable should not exceed 1.5% of the gross revenue.
  • Each time clients are allowed to charge for a service, profit for the veterinary practice decreases.
  • A bigger loss occurs to the practice from the collection process.
  • If a client becomes upset that he or she cannot charge the services rendered, the team should discuss how valuable that client is.
  • Valuable time should be spent on clients who will pay for, and who value, the service they receive.

Discussing Finances

  • Discuss finances privately in an exam room.
  • Discussing finances with a client can be emotional.
    • Clients may be embarrassed that they cannot afford the best care or are in a financial bind that is beyond their control.
    • They can express anger, sadness, or fear toward the staff.
  • Team members should not take this personally.
  • It is the responsibility of the team to offer the best medicine to every client regardless of finances.
    • Conservative options can be presented as alternatives and should be documented in the record.

Payment Options

  • Practices may wish to establish wellness plans which allow clients to make monthly payments for their pet care.
  • Healthcare credit cards may be provided as an alternate for practices that will not extend credit to clients.
    • CareCredit is a healthcare credit card service for veterinary clients.
    • Clients fill out the application in the hospital or at home on the Internet.

Delinquent Checks

  • Checks returned for insufficient funds are a common problem for practices that do not use a check verification machine.
  • Practices may try to collect these balances themselves or hire an outside collection agency to collect the funds.
  • Returned check fees must be applied to the client account to recoup bank charges, lost time, and money.
  • If a collection agency collects the delinquent amount, service fees will be deducted from the check total once it has been collected.
  • Most companies add a 30servicefee30 service fee for returned checks.
  • A notice indicating all fees that will be added to a client’s account if a check is returned must be posted in a location that is clearly visible to clients.
  • An alternative to having checks returned for insufficient funds is to use a check machine that either verifies the account and funds available or one that automatically debits the money from the clients account and deposits it into the practice account.
  • Finance charges to the practice vary based on the service and company selected.
    • The second option eliminates the need to create a deposit slip and ensures money is electronically deposited.

Accepting Payment on Accounts Receivable

  • Two methods:
    • Manual method of recording and tracking transactions
      • Must be managed well to prevent internal embezzlement.
      • All charges, statements, billing cycles, interest, account aging, and payments are calculated and recorded separately on individual ledger cards.
      • Aged accounts can be flagged with different colors and notices sent to clients.
      • When a payment is received, a receipt is provided to the client and a copy given to the account receivable manager to update the ledger.
    • Veterinary practice software with an accounts receivable management program
      • All calculations, interest, and statement fees are automatically calculated and added to the clients account.
      • When a client pays on their account, a receipt is produced, and a new balance is listed.

Instituting a No-Charge Policy

  • Signs should be clearly posted for clients to see throughout the clinic regarding a no- charge policy.
    • Signs should say, “Full payment is required at the time of service”.
  • Estimates must be given to all clients, regardless of clients status for all services that are expected to be rendered for that patient.
  • Team members can print out an estimate, verbally review it with the owners, and explain all procedures and medications the pet will be receiving.
  • The client should sign the estimate as this gives the practice legal documentation that the client accepted the services that the veterinary team has recommended.
  • Practices must collect a deposit of at least half (or more depending on practice policy) at the time of client agreement.
  • Holding checks for a client is not recommended.
    • Accepting post dated checks is illegal in some states.
      • A post dated check is a check that is written but dated at some point in the future.
    • A client could close the checking account.
    • The team member must hold the check in a safe a secure place and deposit it on the correct date.
    • The client will be upset if the check is accidentally deposited early and may try to collect returned check fees from the practice negligence.
    • Check authorizing companies will not authorize or accept post dated checks.
    • Some prosecutors will not pursue cases when a postdated check has been accepted.

Checks

  • Driver’s license numbers should be documented for every client in case of nonpayment or a returned check.
    • Helps a collection agency to collect the balance.
    • May be required if using a check machine.
    • May be required by the local district attorney’s office to prosecute stolen check writers.

Monthly Statements

  • If clients are allowed to charge, there will be an account receivables collection.
  • These clients have outstanding balances and will have a statement generated monthly.
  • A statement advises clients of their balance and indicated charges, payments, and the balance of their account for the month that has just concluded.
  • Statements are a request for money.
  • Institute monthly statement fees.
    • Include time, paper, and postage, along with any finance or interest rates the clinic feels are appropriate.
    • State laws vary reading the amount of interest (if any) that can be added to an account.
  • Statements should be printed on approximately the same date each month.

Collection Procedures for Outstanding Accounts

  • Accounts should be paid by clients within 30 days of charging.
  • Software will age accounts, generally 0 to 30 days, 31 to 60 days, and 61 to 90 days, and over 90 days.
  • Accounts older than 90 days are very difficult to collect.
  • Clients should be sent a statement immediately after the service has been performed and medications have been dispensed.
  • If a client is making monthly payments, it is advisable to continue working with the client before turning accounts to a credit agency.
  • Clients not making payments by 60 days should be notified of the overdue account.
  • Clients not making payments by 90 days can be notified that arrangements need to be made or the account will be turned over to a credit collection agency.
  • Team members should try to call owners to discuss the account and try to make payment arrangements with the client.
  • If contact has been made with the client, a summary of the conversation must be documented in the record.

Collection Procedures & Legal Actions

  • Once all methods of collection have been exhausted, accounts must be turned over to a collections agent.
  • If the agent is unable to collect, the outstanding amount will be reported to a credit bureau or consumer reporting agency.
    • This will affect the client’s credit for 7 years.
  • Practices may wish to take the client to small claims court in order to try to recover owed money.
    • Consider time to prepare for these cases and court filing cost and ensure they do not exceed the small amount owed.

Outstanding Accounts

  • Clients with debts that have been turned over to a collection agent should have their account flagged so that they do not return to the practice and expect service.
    • If a client returns, it is fair to ask the client to pay the previous balance before any new services are rendered.
  • If a clinic decides not to turn over an outstanding account to a collection agent and is unable to collect the balance, it may be written off as bad debt.
    • The client record must be flagged.
    • Written off accounts may need to be reported on yearly taxes.

Fair Debt Collection Practices Act of 1996

  • Regulates collection procedures of past due accounts.
  • Passed to protect the public from unethical collection procedures.
  • Debtors cannot be subject to harassment, oppressive tactics, or abusive treatment.
  • Prohibits the collector from making any false statements to the client, such as claiming to be a lawyer or government agency.
  • Clients may not be called at work if the employer or client objects or be called at inconvenient times or places, such as before 8 AM and after 9 PM.
  • Delinquent payments can only be discussed with the clients themselves.
  • Delinquent notification stickers cannot be placed on the outside of the statement envelopes.

Telephone Calls for Collection

  • Team members should keep a friendly, helpful, and positive tone in their voice when calling clients to determine the client’s financial status and trying to collect delinquent accounts over the phone.
  • Keep the conversation focused on the account collection.
  • Clearly state the hospital policy regarding charging and set a date for when the account will be paid in full.
  • Be prepared to offer the client a payment plan and advise the client that the interest charges will accrue each month.
  • Do not call clients before 8 AM or after 9 PM.
  • Verify who they are speaking with and then identify themselves.
  • Do not leave messages regarding the delinquent balance.

Collections Letters

  • A collection letter may be sent at the discretion of the veterinary practice along with a monthly statement.
  • Clients should be reminded that unpaid accounts will be sent to a collections agency and reported to credit bureaus.
  • Keep the letter short and brief.
  • Make sure the date, amount, and client information are correct.
  • Provide a specific date by which the client must respond.
  • Provide a date for when a specific action (e.g. account will be turned over to a collection agency) will take place.
  • Be firm and polite.
  • Include “thank you” at the end of the letter.

Collections Agency

  • Collections agencies generally charge between 40% to 60% of the total balance that is being collected or may only charge the practice if they are able to collect.
  • Some agencies charge an upfront, nonreturnable fee.

Employee Accounts Receivable

  • An employee accounts receivable policy must be implemented and monitored.
  • Accounts should not be allowed to exceed 100.00100.00
  • Employees must be mandated to make monthly payments.
  • The best practice is that employees are not allowed to charge.
  • Practices that withdraw money from employee paychecks must check state laws because state regulations vary regarding this practice.