The non-glamorous part about running your dental clinic is that even before you receive payments for your services, bills are already knocking on your door. And they are not waiting with the same patience as you are for your payments. This gap is because, even before receiving payments from the insurance provider, you incur lab fees, staff expenses, and supply costs that need to be paid sooner than the insurance provider.
Having such a cash flow gap is the reality dental practices have to adapt to and plan for; they cannot just run on simple transactions. They need to strategize their finances in such a way that helps balance the cash leaving the clinic and, at the same time, maintains the clinic’s overall profitability.
The balance between cash outflow and profitability for a clinic is a delicate one. It should be built upon a strong financial foundation that looks at the long-term profitability of the clinic. The foundation cannot be built with a one-size-fits-all formula. However, it can be established through strict AP management that clinics can incorporate into their daily workflow today, helping to solidify their financial standing for the next five to ten years.
This blog shares tips and tools to help dental clinics adopt the dental accounts payable best practices into their workflow, aiding in maintaining their cost controls.
Accounts Payable: Best practices to control cost for dental clinics
Dental clinics that want to reduce costs by managing accounts payable should define quantifiable objectives with the aim of improving the clinic’s bottom line. Examples of short-term objectives would be to reduce overhead expenses by 5%, renegotiate supplier contracts for more favorable terms, or change payment cycles so the clinic will not incur any late fees. Long-term sustainable goals would be implementing automated inventory controls, thereby helping prevent overspending. The following section describes dental accounts payable best practices that clinics may follow to manage their overhead costs and achieve their financial targets.
Implement strict controls and matching before paying
Verifying that all invoices are accurate according to the orders before processing expenses. Reporting of the same can be accomplished through a three-way match method during bookkeeping. This involves matching a purchase order against the receiving report and the vendor invoice to ensure that all items. The three-way match method verifies that the items ordered have been received in the correct quantities and at the agreed price before payment is made to the vendor. It also helps to avoid the occurrence of overpayment or unnecessary costs for unreceived supplies. Having a hierarchy of authorized signatures for approvals, particularly for high-value invoices needing authorized approval, enhances the security of the internal control structure.
Audit for identifying duplicate payments
To set up controls for preventing duplicate payments on invoices, all accounts payable should be regularly reviewed. The reason for this is that vendors will frequently send multiple invoices for one order, as well as invoices being billed to both the corporate charge card and as individual invoices. Therefore, it is important to reconcile invoices against payment records to verify that the invoice number and payment date have not matched within the same month.
An electronic system can assist in identifying potential duplicate payments by performing an analysis on the vendor’s name, amount, and invoice number. This process can result in significant cost savings.
Centralize and standardize the AP process
Centralizing the accounts payable process is particularly beneficial for multi-location practices or dental service organizations (DSOs). It helps ensure uniform policies in vendor selection, procurement approvals, and payment schedules. By standardizing AP activities such as employing a single portal for invoice submission or maintaining a unified chart of accounts, operational mistakes are minimized.
Workflow efficiency is improved, and overall spending becomes more transparent. This approach also reduces reliance on inconsistent, ad hoc purchasing methods that commonly result in increased expenses.
Optimize payment schedule
Proactive management of a dental practice’s cash flow can help to reduce or eliminate late fees and retain cash longer through optimal scheduling of accounts payable. Rather than paying invoices upon receipt, dental clinics can create an outgoing payment schedule that matches the timing of the inflow of accounts receivable.
For example, a dental practice may set up a bi-monthly payment schedule, such as every 15 days, to help retain as much cash as possible until needed for operational expenses. This approach avoids incurring interest charges or accumulating debt during that period.
Automate to reduce time
Automating the Accounts Payable process means dental clinics don’t have to manually enter invoices anymore, wait for paper-based authorizations, or write checks. Rather, they use electronic solutions to capture the full details of an invoice, categorize the invoices by type of expense, and send the invoices for digital approval. The result is that automated processes reduce labor costs by streamlining processes and eliminating administrative tasks. In addition to reducing error rates, automation increases efficiency and gives staff more time to provide more focused patient care.
Look for early payment discounts
Many suppliers of dental products, as well as clinical laboratories, offer early payment discounts on their invoices. For example, they may provide a 2% discount for paying within 10 days of the invoice date instead of the traditional 30 days. Finding and taking advantage of these discount opportunities (as they relate to dental supplies and dental lab service purchases) could save you a considerable amount of money. It will also require you to have an organized invoice process and to process invoices rapidly. Being proactive about your invoice handling is one of the best strategies you can use to improve your profits.
Regularly reconcile paid accounts and cleanse your vendor list
It is necessary to perform monthly reconciliation of invoices received from banks and credit card companies in order to track, identify, and resolve discrepancies. Allowing for the early detection of issues because you will do this monthly, rather than infrequently. Also, you can keep your list of vendors up to date by regularly reviewing it. Removing those who are no longer active, correcting any addresses, or updating any contact information. When doing so, you decrease your chances of falling victim to fraud or incorrectly paying existing but inactive vendors.
This proactive approach helps maintain the accuracy and integrity of your vendor’s database. Therefore, it is essential that you maintain an accurate and current listing of your vendors. This ensures accurate financial records and a current, appropriate relationship with each one.
Conclusion
Dental clinics must aggressively manage accounts payable to ensure daily stability and long-term financial health. They can avoid accumulating any late or other penalties due to their failure to pay on time by keeping up with regular bill review and payment activity. As a result of these dental accounts payable best practices, the clinic can experience continued success through maintaining strong relationships with its suppliers and vendors.
Dental clinics’ strong relationships with suppliers and vendors can provide opportunities to improve their financial position. They can receive better terms, discounts, and exclusive offers from these partners.
A sound method of handling dental accounts payable best practices follows standard acceptable procedures for processing. By utilizing this method, the clinic can strategically allocate its resources to enable the clinic to use those resources as tools to create business growth, expand service offerings, and to acquire new technologies. Additionally, as a result of this methodical approach, clinics can increase their level of credibility with investors and other stakeholders, which will further improve the reputation of the clinic and provide a strong foundation for continued support as well as future success.
