Accounts receivable, or monies owed to the practice for work done, are becoming less common as payment at the time of service transitions into the norm. Still, when substantial, they can cripple a veterinary business. A practice owner might be unable to take a paycheck or struggle to pay their distributor on time for medications and supplies.
The Traditional Equine Practice Business Model
The traditional equine practice business model of invoicing clients at the end of the month often creates significant accounts receivable (AR). Perhaps because of the time lag between the visit and invoice receipt or because the bill is large, it is not uncommon for clients to take 60 or even 90 days to pay. Monthly billing always reduces cash flow into the practice. Practices often continue to provide services to clients with overdue accounts until the total owed is high and the debt has aged considerably over 90 days. Debt aged over 90 days is often uncollectable.
The Problem With Accounts Receivable
The main cause of small business failure is poor cash flow. Having outstanding payments hampers the ability to make loan payments and pay suppliers, rent, and employees, especially during slow seasons. Therefore, many practices, especially those established in the last decade, require payment at the time of service. Typically, the practice emails an invoice during the farm visit, and the client is expected to send an electronic payment, mail a check, or authorize payment to the credit card on file within a short period.
How to Minimize Accounts Receivable
Reducing AR begins with minimizing it. For practices that currently invoice monthly, adopting weekly or biweekly invoices will increase cash flow. Creating clear, consistent financial policies and distributing them to clients is critical. Owners need to refrain from breaking their own rules. A motivated employee with good communication skills might be very successful at collecting old accounts receivable if they receive a piece of the monies collected. Collection agencies take at least a third, so offering the staffer 10-20% of the collected amount still leaves the practice ahead financially. Sending reminders through text messaging, email, or phone calls can be an effective way to collect overdue amounts and should not be reserved for grossly late payments. Set expectations for prompt payment within five to 10 days of receiving the invoice.
Make it convenient and easy for your clients to pay their invoices, and try to deliver them via the client’s preferred method, whether that’s paper or electronic. Accepting a variety of payment methods will increase your cash flow. Clients increasingly want to pay invoices electronically, and they appreciate the convenience of a payment portal on the practice’s website. Consider offering a credit program such as CareCredit to help clients with limited means.
Final Thoughts
Making the effort to reduce accounts receivable is worth the discomfort. Business health requires reliable cash flow, and considering a move to payment at the time of service can minimize AR and maximize efficiency. Consistent financial policies and deliberate methods for collecting overdue accounts can increase practice success. By adopting new paradigms, equine practices can become more financially secure and profitable.
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