Debt management
Get on top of unpaid accounts
44% of entrepreneurs said that late payments were having a negative effect on their mental health.1
28% of SME owners said they would feel more confident in their business decisions if payments were made on time. 1
43% say they have had sleepless nights worrying about their business’ cash flow. 1
Source: 1 State of Late Payments Report 2019, produced by Xero in partnership with PayPal
Most practices ask for payment at the time of treatment, but situations regularly arise where this is not possible:
Unexpected emergencies where the owner might not have the ability to make full or immediate payment.
Rejected insurance claims.
Rejected direct debit payments for healthcare plans.
Many of these situations can be dealt with more easily and effectively by having clear protocols and terms and conditions.
Having a process to follow is also useful in situations where emotions can be running high. It removes the need to make arbitrary, less considered decisions that may be more likely to be disputed or viewed as unfair.
When signing up a new client, the practice has an opportunity to collect the level of data that can be needed if a debt has to be pursued. Incomplete addresses, incorrect owner names or the lack of a telephone number are all factors that can impede the ability to collect any debt owing. Ensure the PMS is set up to collect all relevant information when first registering a client.
Veterinary practices rarely use software or request photo identification to check identity or address to help with fraud mitigation but if the intention is to offer credit terms or offer payment plans this is something that could be considered.
Supply clear ‘Terms and Conditions’ that state your expectations around payment, including reference to specific scenarios, such as insurance payments, extended credit terms or payment plans and any interest that may be charged. Acceptance of terms and conditions can also be set up as part of the routine onboarding process and viewed on your website.
While many Terms and Conditions documents are formulated with direction from your legal adviser, you may wish to include:
A commitment to clear communication, including the use of written estimates where appropriate and possible (allowing for flexibility in an emergency situation where immediate action might be required). This helps to create a paper trial which can be useful when a charge is disputed.
Any credit terms – such as when an invoice is due and any interest that may be charged and at which point it is charged.
Process for insurance claims – whether direct payment by the insurer is allowed and the process if a claim is rejected.
Direct debit payment options or payment plans available.
Your debt management protocol.
It is a general rule of thumb that the further a debtor gets from the point of buying a service which remains unpaid, the less likely they are to pay. The benefit they received at the time becomes less well recalled and your debt drops down the priority list. Therefore, staying on top of unpaid debts is essential.
Both the PMS and any accounting packages used should have the facility to run off an unpaid debts report on demand. While there is usually a facility to send invoices or statements for amounts that remain unpaid, the power of picking up the telephone and making a call should not be underestimated.
Your process will often depend on your practice tolerance for bad debt and you may also want to consider the cost effectiveness of chasing smaller debts and whether you are prepared to ‘write off’ smaller amounts.
Your process should be individual to the practice, but it could look something like this:
Step 1. Weekly debtor reportRun off a weekly debtor report from your PMS or accounting package. This should also show any deposits received or payment agreements made.
Step 2. Contact all debtors by phoneCall all debtors and offer to take payment over the phone. Non-payment might have been due to forgetfulness and often a personal reminder results in prompt payment. Those who have been called and cannot make immediate payment are asked to make payment within 7 days. Where this is not possible a payment plan may be agreed upon.
Step 3. Run aged debtor reportsThose with bills still outstanding for more than 14 days may receive a letter, repeat invoice or statement. You may wish to repeat the offer of a payment plan or call to arrange a mutually agreed and feasible schedule.
Step 4. Escalated letterAfter another 14 days an escalated letter is sent, warning that if payment is not received within 7 days the debt will be passed to a debt collection agency, with relevant notes made on the PMS.
Step 5. Debt recoveryBased on the size of the debt, it can be passed to a debt recovery agency who will usually take a percentage of any recovered money as a fee (no-win, no-fee basis).
The debt recovery agency will have a much greater chance of success if you supply full and correct contact details.
The other options at this stage are to write-off the debt if it is too small to warrant further action or to process your claim through the small claims court. The latter often has cost implications either as a result of staff time or legal advice.
Read more….
Citizens Advice - ‘A guide to debt recovery through a county court for small businesses’
Step 6. Note on client accountA note may be made on the client account to only give emergency treatment unless payment is made in advance, or you may wish to issue a letter refusing further service and ask the client to register elsewhere.
At each point, notes should be made confirming the action taken so that the process can be carried out consistently by team members regardless of annual leave or unexpected absence.
By having a defined process, the tone of communication can remain polite, professional and helpful. This can reduce the stress and emotion of these situations which can otherwise result in a breakdown of communication and client relationships, as well as being upsetting for employees.
In a busy practice keeping to the process may fall by the wayside, so using the PMS or a CRM to set up a task reminder is a useful adjunct to help keep on track and it may also be possible to automate certain tasks consistent with your process.
All members of the team need to understand the impact of unpaid debt. Interrogating the data to generate cost comparisons can be useful to help aid this understanding: for instance, ‘the unpaid debt accrued this year is equal to the pay increase awarded to the whole team last year’
