Chances are anytime there’s the word “issue” you want to avoid it, the case of cash flow issues is no different. To avoid cash flow issues it’s important you know two things:
- Your cash flow cycle. You need to know how long it takes to get money into your bank account after treatment is delivered.
- Your 12-week cash flow. You want to know what the comings and goings of your cash is for the next 12-weeks. In this case, we recommend working with your bookkeeper or even using a simple excel spreadsheet to demonstrate your cash in and out flow.
Understanding your AR better
Managing your cash flow effectively requires you to have a good idea of when money is coming into your dental practice and when your payables are due. You have patients coming in every day, along with insurance contributions but it’s important to get a better handle on it then that. For insurance payments, make sure all of the cash is delivered via direct deposit as opposed to cheques, as cheques take longer. You also need to make sure that any patient balance is collected immediately at the end of the visit to have a proper handle on your Accounts Receivable.
When you receive cheques, don’t hold on to them. Deposit all cheques right away. You can use a cheque scanner to make sure they are deposited as soon as they received. Work with your staff to instill a process of taking care of cheques immediately to help expedite these payments coming into your dental practice’s bank account.
Understanding your AP better
You should also proactively plan when payments are being removed to better understand your 12-week cash flow. Your regular payments such as your rent, utilities and monthly payroll need to be part of your cash flow overview so you best understand how you are doing.
It is important for your dental practice for you to be proactive and have access to a line of credit if you’re in a crunch. When it comes to paying it off, if you’re in a jam talk to your bank. Most banks will offer an extension on interest-only payments on your loan. Make sure you maintain a good relationship with your banker and don’t wait until the last minute to ask.
Once you have a better understanding of your cash flow, you are much less likely to have issues. Understanding is the first step to managing effectively.