We can all agree that equine veterinary practice is very hard work. What makes it even tougher after the long hours, fractious horses, challenging cases, and miles on the road, is when we don’t get paid for our services. Despite this, many equine vets resist implementing an accounts receivable strategy. Whether it is because we are afraid of losing clients or a lack of appreciation of the value of our services, we hate asking for money. Our excuse is, “that’s just the way equine practice has always been, and no horse owning clients will ever pay at time of service”. At the same time, we are expected to pay our bills within 30 days and yet most of our clients take 60 days or more to pay us. What happens when that gap gets so wide? We have to borrow money from the bank so we can pay our bills. Something is wrong with that picture.
3 years ago our emergency pet care practice was finding that it was taking us over 60 days on average to collect from our clients. We pride ourselves on paying our bills on time so we were in a position of having to use whatever profits we had or borrow from the bank to pay our bills because our clients had not paid us. We had to do something.
We instituted a simple to follow, but very effective system, that has resulted in the majority of clients paying at time of service, while a few remaining excellent clients retain the privilege of paying within 30 days. Here is how we did it:
Average Days AR
This is the formula we used to determine that our average days AR was over 60 days!!
It tells us on average how long it takes to collect payment on the services we sell. The formula we use is
accounts receivable total.
(sales for previous year/365
Ideally we would like this number to be less that 30 since we have to pay our supplier bills in 30 days. We want to get paid before our bills are due. The closer to zero the better.
Once we had developed this metric, we split our clients into three groups: new clients, chronically late payers, and excellent clients who always paid within 30 days. We realized that the best way to avoid AR problems was to not let customers pay on credit. With that in mind, we developed a policy that all new clients were to pay at time of service, with no exception. Our customer service receptionists would email or fax a new client form to every new client that detailed our credit policy. It asked the new client to give us a credit card to keep on file and to sign their agreement to the policy. 99% of all new clients did this without batting an eye. Those who refused always had an excuse like “I don’t have a credit card”. Our attitude was, if Visa or Mastercard won’t offer you credit, why should we? We wouldn’t say this of course, but we told these people that our vets would expect to be paid with a cheque or cash at the appointment. Right away we are on the right track to reduce our average days AR by getting paid at the time of service.
The slow payers were sent a letter informing them of the new policy, and that because they were historically late on their accounts we now expected them to pay at time of service. We enclosed our credit policy and asked for a credit card on file and a signed acceptance of our new policy. I made sure to be at the office for a few days after sending these letters out expecting a huge backlash from certain clients. Was I every surprised when we didn’t get a single phone call! Well we thought, wait until we call them for a dentistry appointment and ask for a credit card for the first time. Not a peep!
The last group were the great clients. We also sent them a letter explaining our new policy, but let them know that since they have always been reliable we weren’t going to insult them by expecting them to pay at the time of service. However, if they strayed even once past 45 days they would automatically become a COD client. Again, not a whimper from anyone about our new terms
The end result was that we did not receive one client complaint or threat to move to another practice, and at the end of the year we actually had an increase in both sales and new clients. We may have quietly lost a few who did not agree with our new policy, but it appears they were ones we could stand to lose and they were quickly replaced by those who were willing to pay for vet services.
It has been 3 years since we instituted our new credit terms and there have been a few things we learned along the way.
- We must be diligent with the policy. Once we slack off even a little bit we see our Ave Days AR creep up a little bit.
- If the vets are paid on production, only pay commission on the clients invoices that have paid. This way vets won’t work for just anyone to increase their sales, while at the same time the office must be vigilant about not sending them to work on bad paying clients. Not all practice management softwares can run a report that gives you this information, so you may want to investigate your own software system to see if you can benefit from this feature.
- Detail what the method of payment will be for every appointment on a day sheet for each vet. This lets the vet know whether the clients will have a credit card on file, or will be paying by cheque cheque or they are a client that is allowed credit terms.
- Have a very safe system to store credit card information. Most practice software systems can do this. Some veterinarians have had good luck using smartphone apps like Square, which allows you to swipe a credit card using your smartphone. In this manner, a veterinarian can take a payment at the appointment even when on the road.
Of course with every system there are exceptions to the rule. For example, this system can be challenging to implement in a racetrack or breeding practice. The business model of those types of practice depend on numerous part-owners, and trainers that attempt to control the process. At the same time, our clientele has many absent owners in show horse barns and pet boarding stables but we have not had an issue with acceptance of our system.
Before we instituted our new AR system our average days AR was in the 60 day range. It was taking us twice as long to collect our money as it was to pay our bills. Now we are less than 30 days and have been for 3 years. Our cash flow is much better because money owed to us is acutally in our hands, and not in the pockets of our clients, this is why we like using b2b payments. Our vets are much happier knowing they are working for clients that are paying when they are supposed to. The customer service representatives spend most of their time making appointments instead of chasing after money. The main thing is that we haven’t a lost a client because of our credit policy, except those few who likely wouldn’t want to pay anyhow.
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