Recovering the Lost Revenue: Why Your Practice is Collecting at 91%
Are you producing $1 million but only collecting $910,000? Where is the other $90,000 going?
In this episode, we take a closer look at one of the biggest financial issues facing dental practices: the gap between production and collections.
A 91% collection rate may sound good, but on $1 million in production, that means $90,000 is not being collected. Year after year, that gap can turn into hundreds of thousands of dollars in lost revenue.
We discuss why practice owners need to understand the difference between what their practice produces and what it actually collects, how these financial leaks happen, and why uncollected revenue is not an investment—it’s money your practice has already earned.
Most importantly, we share practical strategies to help you close the collection gap, recover lost revenue, and improve the financial health of your practice.
Because producing more isn’t always the answer. Sometimes, the biggest opportunity is collecting more of what you’ve already produced.
Takeaways:
- The significant disparity between production and collections indicates a serious financial leak within a dental practice.
- Practices that consistently collect only 91% of their production incur substantial losses over time, amounting to hundreds of thousands of dollars.
- Effective collection strategies focus on recovering money already earned rather than creating new income streams through increased production.
- Monitoring both the collection percentage and adjustments provides invaluable insights into a practice's financial health and operational efficiency.
Looking for guidance on how to run your practice effectively? Visit: klasdentalcoaching.com to see how we can help set your practice up for success!
Transcript
Imagine you produced a million dollars last year.
Speaker A:You worked every one of those days, you earned every dollar of it, and then you simply handed 90,000 of it to people who never paid you.
Speaker A:You'd be furious, right?
Speaker A:But that's exactly what a practice collecting 91% is doing.
Speaker A:And most owners have no idea that it is even happening.
Speaker A:Because the production report looks great.
Speaker A:Production is what you did.
Speaker A:Collections is what you got.
Speaker A:The gap between them is pure loss.
Speaker A:Not a discount that you chose, not an investment in growth loss.
Speaker A:And here's what makes it worse.
Speaker A:That $90,000 is not a one time event.
Speaker A:A practice that collects 91% this year collected 91% next year, next year or last year because the leak is in the process.
Speaker A:And the process is repeat.
Speaker A:Five years of that is $450,000.
Speaker A:That's a hygienist for five years.
Speaker A:That's your entire marketing budget for a decade.
Speaker A:That is a real piece of your retirement.
Speaker A:Walking out the front door in small enough pieces that nobody notices.
Speaker A:Foreign.
Speaker A:This is the Dental Business podcast brought to you by Class Solutions.
Speaker A:One team.
Speaker A:Five divisions aligned around your practice.
Speaker A:I'm Phil Cole and today the money you already earned and have not collected.
Speaker A:Well, this is one of the fastest fixes in the whole practice and it's often one of the largest because we're not creating anything new, we're just going back for what's already ours.
Speaker A:This episode is going to be brought to you by class coaching.
Speaker A:Production is a promise.
Speaker A:Collections, though, is cash.
Speaker A:A class coach helps you collect what you already earned.
Speaker A:Visit us at classdentalcoaching.com now owners fall in love with production because it feels like success.
Speaker A:It's the number your software puts at the top of the screen.
Speaker A:It's the number you compare with the guy who went to school with you.
Speaker A:It's the number that goes up when you work harder.
Speaker A:And working harder is a thing that you know how to do.
Speaker A:But production does not pay your team does not pay your rent.
Speaker A:It does not pay you.
Speaker A:But cash does.
Speaker A:A practice with lower production and excellent collection beats a practice with higher production and sloppy collections every single time.
Speaker A:And I'm gonna tell you right now, it's not even close.
Speaker A:So here is the number collection percentage of what you produced.
Speaker A:How much did you actually bring in?
Speaker A:Take your collections for a period and drive them by, or divide them, I should say by, by your net production for that same period.
Speaker A:Healthy is 98% or better.
Speaker A:So that would be excellent.
Speaker A:Now, one warning about how you pull that number, because this is where owners get fooled, I think sometimes in both directions.
Speaker A:Don't judge yourself on a single month.
Speaker A:Insurance pays on a lag of 30 and some of them, depending on how bad they are, to 45 days.
Speaker A:So a month where you produced a big case at the end where will read low and the month after, well, it's going to read higher when the money lands.
Speaker A:I have seen a practice read 108% one month and 84% the next, while nothing changed at all.
Speaker A:Look at a rolling three months, bare minimum.
Speaker A:But looking at a rolling 12, well, that's going to tell you the truth.
Speaker A:And the rolling number is the one that cannot lie to you.
Speaker A:When I see a practice sitting at 90, 91, 92 on a rolling basis, I know there is real money to recover.
Speaker A:And usually fairly fast.
Speaker A:Pretty fast.
Speaker A:We're not creating new production, we're not adding chair time.
Speaker A:We're not spending a dollar on marketing.
Speaker A:We're collecting production that already happened.
Speaker A:And there are exactly two places the money leaks at the front end, when balances are not collected as care is delivered.
Speaker A:And then there's the back end when old balances age until they are hard to recover.
Speaker A:Now we're going to fix both.
Speaker A:But before we do, I need to give you a second number.
Speaker A:Because collection percentage by itself will hide the most important thing this whole episode.
Speaker A:In this whole episode, I should say every practice has adjustments.
Speaker A:Money that shows up in production and never shows up in the bank.
Speaker A:And that's on purpose.
Speaker A:Adjustments come in very different flavors that most software lumps into one line, which is a problem because they mean opposite things.
Speaker A:I mean, think of it.
Speaker A:The first flavor is a contractual write off, right?
Speaker A:You're a PPO provider.
Speaker A:Your fee is $1,400.
Speaker A:The plan allows $900, and so you have to write off $500.
Speaker A:You agree to that when you sign the contract.
Speaker A:So it's not a collections failure, it's just the price of that patient.
Speaker A:The second flavor is a courtesy adjustment, or some people call it a professional discount, a family discount, a fee that is knocked down because the patient winced.
Speaker A:Possibly that was a choice.
Speaker A:And then the third flavor is bad debt.
Speaker A:You build it, you meant to collect it, but you gave up.
Speaker A:That's not a choice, that's a loss that you're recording as a choice.
Speaker A:Though those three things live in one bucket in most practices.
Speaker A:And that single fact is why owners cannot see their own problem.
Speaker A:So here's the fix.
Speaker A:And it takes about a day.
Speaker A:Go into your software and separate your adjustment types Contractual write offs is one category.
Speaker A:Courtesy, professional discounts, whatever you want to call it.
Speaker A:And another.
Speaker A:And then bad debt is the third.
Speaker A:That's it.
Speaker A:That one change will show you more about your practice than any report you have run this year.
Speaker A:I promise.
Speaker A:Once they're separated, you get two ratios instead of one.
Speaker A:Your gross collection ratio is collections divided by gross production.
Speaker A:Before any adjustments, this number tells you about your fee schedules and your payer mix.
Speaker A:If it's low, that is not a collection problem.
Speaker A:That is a contracts problem.
Speaker A:Very different.
Speaker A:And the fix is renegotiating FEES or dropping PPOs or which is a whole different episode.
Speaker A:Your adjusted collection ratio is collections divided by net production, meaning production after you take out the contractual write offs you already agreed to.
Speaker A:Now, this is the number that measures your team.
Speaker A:It answers one question.
Speaker A:Of the money you were actually entitled to collect, how much did you get?
Speaker A:98% Or better.
Speaker A:This is a number I want you on your dashboard that you should be paying attention to.
Speaker A:Now, here is why all of this matters.
Speaker A:And this is the part I need you to hear.
Speaker A:A practice can make its collection percentage look perfect by writing off everything it fails to collect.
Speaker A:Write off the balance and it disappears from your aging and stops dragging your collection number down.
Speaker A:The report gets prettier or, well, the practice, well, it's just going to get poor.
Speaker A:And we see this all the time in practices because a lot of times it's just the easy way to do it.
Speaker A:So watch adjustments alongside collections, always as a percentage of production.
Speaker A:If your collection percentage is climbing and your bad debt write offs are climbing with it, you are not collecting better, you're just forgiving faster.
Speaker A:Bad debt should sit under 1 percentage of net production.
Speaker A:Courtesy adjustment should be a decision somebody made on purpose with a reason, not.
Speaker A:Not a habit the front desk fell into because the alternative was an awkward conversation.
Speaker A:All right.
Speaker A:The best collection strategy in the world is to never create a receivable in the first place, right?
Speaker A:So collect the patient portion at the time of service.
Speaker A:This sounds obvious, I know, and almost nobody does it.
Speaker A:Well, the number here is time of service, collection percentage.
Speaker A:Take the patient portion you collected on the day of service.
Speaker A:Divide it by the total patient portion that came due that day.
Speaker A:Target 95% or better.
Speaker A:Every dollar you collect, the daycare is on.
Speaker A:The daycare is delivered is a dollar that will never age.
Speaker A:Never need a statement.
Speaker A:Think about it.
Speaker A:We'll never need a phone call, we'll never need a payment plan and never get written off.
Speaker A:The cheapest dollar you will ever collect is the one you collect while the patient is standing at the desk.
Speaker A:Getting a 95% takes six things and I'm going to give you all six right now.
Speaker A:1.
Speaker A:1.
Speaker A:Verify insurance before the patient arrives, not eligibility.
Speaker A:Verify the plan, remaining annual, maximum deductibles met or not met.
Speaker A:Frequency limitations, the history on the procedures you're planning, downgrade clauses on posterior composites, maybe missing tooth clauses, waiting periods two days ahead in writing in the chart.
Speaker A:A team that is guessing at the desk cannot collect at the desk and they know it, which is why they don't even ask.
Speaker A:2.
Speaker A:Estimate conservatively.
Speaker A:This is the one counterintuitive and it matters enormously.
Speaker A:If you estimate the insurance portion high, well, you'll collect low and you create a balance and what is it?
Speaker A:A surprise patient six weeks later.
Speaker A:If you estimate the insurance portion on the low side, you collect a little extra and later you hand back credit or a refund.
Speaker A:Think about which two phone calls you would rather your team make.
Speaker A:Just ask them.
Speaker A:Refund conversations are easy.
Speaker A:Collection conversations not so much.
Speaker A:Estimate low on purpose.
Speaker A:3.
Speaker A:Financial arrangements happen before treatment, not after.
Speaker A:Every treatment plan gets a dollar number attached to it and an agreement the patient signs.
Speaker A:The patient knows their portion before they sit down in the chair.
Speaker A:Nobody in the history of dentistry has ever been happy to learn their number while they're getting numb.
Speaker A:Let's say four Put Put your financial policy in writing and have every new patient sign it.
Speaker A:What you collect and when.
Speaker A:Card on file authorization broken appointment policy when statements go out.
Speaker A:Let's see what happens at 90 days if it's not written down and signed.
Speaker A:Well, I'm just going to tell you you don't have a policy.
Speaker A:You have hope and your team has nothing to point to when a patient pushes back.
Speaker A:5.
Speaker A:Train the language and assume the payment.
Speaker A:There is an enormous difference between would you like to take care of that today?
Speaker A:And your portion today is $412.
Speaker A:Would you like to put that on the card that you have on file or on a different card?
Speaker A:The first one is a yes or no question and you can't afford the no.
Speaker A:The second one assumes the payment and offers a choice about method.
Speaker A:Same warmth, completely different results.
Speaker A:Never ask a question you can't afford the wrong answer to.
Speaker A:And finally 6 solve the money problem before the appointment, not at checkout.
Speaker A:Third party financing approved in advance.
Speaker A:An in house membership plan for the patients with no insurance on a large case, a deposit at the time of scheduling and half down.
Speaker A:Or anything with a lab bill so that your lab invoice is covered before it arrives and nobody walks past the front desk without stopping.
Speaker A:Every patient checks out.
Speaker A:Every checkout has a number.
Speaker A:Now, most of what I just described is not systems problem, it's a comfort problem.
Speaker A:A lot of teams are uncomfortable talking about money, so they avoid it and the practice quietly for that discomfort.
Speaker A:They grow that year after year.
Speaker A:So in my experience, there are only two reasons a team member will not ask for money.
Speaker A:Either they don't know the words or they don't believe the number they're looking at.
Speaker A:So give them a verified estimate and a script for both reasons and both reasons then disappear.
Speaker A:Ten minutes of role playing in the morning huddle for two weeks will change your collections more than any software you could buy.
Speaker A:That is coaching work and it is the fastest coaching work there is.
Speaker A:So one more thing on the front end, know your insurance versus fee for service mix because it changes this entire conversation.
Speaker A:This is a big enough topic that we're going to give it its own episode next week.
Speaker A:But for now, understand this.
Speaker A:The more you rely on insurance, the more disciplined your front has to be.
Speaker A:Because insurance controls your timing and your rate, and you control neither.
Speaker A:Now, money you earn is aging by the day.
Speaker A:At Class Practice health assessment, it shows how much your AR is still recoverable.
Speaker A:Check us out at classdentalcoaching.com now let's go to the back end.
Speaker A:Right.
Speaker A:The accounts Receivable aging report.
Speaker A:This is the money you earn that is getting older by the day.
Speaker A:And here is the hard truth about it.
Speaker A:The older a balance gets, the less likely you're ever to collect it.
Speaker A:Your aging report sorts balances into buckets, some of them depending on your software.
Speaker A:Current 31 to 60 days, 61 to 90 day, 91 days and over 90.
Speaker A:Think of those buckets as a curve going down.
Speaker A:At 30 days, you collect almost all of it.
Speaker A:At 90 days, expect to lose somewhere between a fifth and a third past 120 days, well, it falls off the cliff at a year.
Speaker A:You're collecting pennies and you're spending real payroll to do it.
Speaker A:So the number to watch in accounts receivable over 90 days.
Speaker A:That bucket is your danger zone.
Speaker A:Money in it is just flat out dying.
Speaker A:Two benchmarks to measure yourself against.
Speaker A:Your total accounts receivable should sit right around one month of net production and never above one and a half months.
Speaker A:And your over 90 bucket should be under 5% of your total AR.
Speaker A:Good practices run under 10.
Speaker A:So if your total AR is two or three months of production, you're not running a Dental practice you're running a small well, you can pretty much call it an unprofitable bank.
Speaker A:The job is to work balances before they reach 90 days on a schedule, as somebody's personally named the responsible party to do that.
Speaker A:Not something the team gets to do when it's quiet.
Speaker A:Because guess what?
Speaker A:It's never quiet.
Speaker A:If a task does not have a name on it and a reoccurring block of time attached to it, I'm just going to tell you that task, it doesn't exist.
Speaker A:Now split your aging into two piles because there are two completely different problems with two completely different fixes.
Speaker A:Patient balance versus insurance balances.
Speaker A:So let's talk insurance first, because it's usually one where the bigger and easier money is.
Speaker A:Insurance aging is almost never one thing.
Speaker A:When we open up a practice's insurance aging, we find the same five causes.
Speaker A:Claims that were never actually sent.
Speaker A:They're sitting in an unsubmitted batch.
Speaker A:Nobody checked claims sent without the attachments.
Speaker A:So you forgot the X ray or the perio chart or the narrative never went and so the claim was denied for documentation.
Speaker A:Claims denied once and never worked again.
Speaker A:Which is probably what I think is the biggest one.
Speaker A:Claims sent to the wrong payer or an old plan the patient left two years ago.
Speaker A:And lastly, the claims that have simply sat past the filling deadline.
Speaker A:That last one is one that you should really be scared about.
Speaker A:So let me be very clear about this.
Speaker A:Every payer has a timely filling limit.
Speaker A:For some it's going to be 90 days.
Speaker A:For many it's 180 days.
Speaker A:Few of them have it for a whole year.
Speaker A:But once you pass the deadline, the payer owes you nothing.
Speaker A:And under most PPO contracts, you can't turn around and bill the patient for a claim you failed to file on time.
Speaker A:So that money is not aging, it's just flat out gone.
Speaker A:It was 100% yours.
Speaker A:You earned it clinically.
Speaker A:And it evaporated because nobody looked at a report.
Speaker A:Here's how you work insurance aging, and it is not complicated.
Speaker A:One person has to own it.
Speaker A:That person gets the reoccurring block on the calendar every week.
Speaker A:And the block is protected the way you'd protect one of your own.
Speaker A:Crown seats work highest dollar and oldest first, because that's where the money is.
Speaker A:Batch your calls by payer, not by date.
Speaker A:So you're working one payer system and one payer's rules at a time.
Speaker A:Instead of starting over on every call, get a claim status and a reference number on every single call.
Speaker A:And note the ledger every time you touch an account.
Speaker A:If it's not in the ledger, well, in my opinion, it didn't happen.
Speaker A:And the next person is going to start from zero.
Speaker A:Now, while you're at it, fix the front of the claim or you'll be having the same conversation next year.
Speaker A:Attachments on the first submission every single time.
Speaker A:Clean narratives written before the claim goes out.
Speaker A:Electronic attachments instead of mail.
Speaker A:A clean claim gets paid for usually in two weeks.
Speaker A:A claim that has to come back, well, it can take six weeks and half of them.
Speaker A:Well, I hate to say it, but we see never come back at all.
Speaker A:Now, patient aging, that's a different conversation.
Speaker A:Same principle.
Speaker A:It responds to a consistent process instead of a sporadic panic.
Speaker A:Here's a ladder I want you to run and I want you to run it.
Speaker A:I identically for every patient, statement goes out immediately at 30 days.
Speaker A:Second statement poll plus a phone call at 60 days, a call from somebody with authority, not just whoever, is free.
Speaker A:At 90 days, a final notice with a specific date on it.
Speaker A:At 120 days, a decision outside collections or write it off and stop paying payroll to chase it.
Speaker A:Two things about this.
Speaker A:The phone call beats the statement every time, and it's not even close.
Speaker A:A statement is a piece of paper that goes in a pile.
Speaker A:A call is a person and people pay people.
Speaker A:And the latter runs the same for everybody.
Speaker A:There can be no exceptions, no favorites.
Speaker A:No.
Speaker A:Well, she's been with us since the very beginning.
Speaker A:I promise that the exceptions are exactly what built the aging report you're looking at right now.
Speaker A:Two cleanup items.
Speaker A:While you are.
Speaker A:While you're just basically in there.
Speaker A:I should say first, set a small balance.
Speaker A:Write off policy, pick a threshold, $5, $10, whatever you want, and write those off in the batch once a month.
Speaker A:Stop spending $8 of payroll to chase $4 a balance.
Speaker A:And second, clean up your credit balances.
Speaker A:Most aging have them.
Speaker A:Patients who overpaid and never get refunded.
Speaker A:And you know, just so you know, those are a liability, not an asset.
Speaker A:In many states, unclaimed property law has something to say about them.
Speaker A:They're all.
Speaker A:They also make your net AR look smaller than it really is, which means you're congratulating yourself with a number that.
Speaker A:Well, that's not even true.
Speaker A:When we take a practice through a collections cleanup, we routinely.
Speaker A:Excuse me, I can't pronounce the word recover.
Speaker A:A meaningful chunk of that aging inside of the first 90 days, and it's already earned it just been sitting there getting older because nobody Owned the process and honestly, the recovery is smaller.
Speaker A:It's part of that, but it's mostly half the win, I should say.
Speaker A:The bigger half is that the aging never builds back up because now there's a process and a name attached to it.
Speaker A:So it doesn't continue to go on in the future.
Speaker A:This is one of the most satisfying things to watch on our class dashboard because the money is real and it arrives fast.
Speaker A:Five numbers reviewed every month.
Speaker A:Adjusted collection ratio climbing towards 98 and past it.
Speaker A:Bad debt write offs holding under 1%.
Speaker A:So we know the collection number is honest.
Speaker A:Time of service collection percentage climbing towards 95.
Speaker A:So you stop creating new receivables.
Speaker A:Accounts receivables over 90 days shrinking month after month and insurance aging coming down as follow up gets disciplined.
Speaker A:Notice how those work together.
Speaker A:Time of service collection is your leading indicator.
Speaker A:It tells you what your agent is going to look like 90 days from now over 90.
Speaker A:AR is your lagging indicator.
Speaker A:It tells you what your process looked like 90 days ago.
Speaker A:Fix the leading number and the lagging number fixes itself permanently.
Speaker A:That is why we coach the front end first and clean up the back at the same time.
Speaker A:Here is what I want you to do with everything that we covered today.
Speaker A:There's three things this week.
Speaker A:One, pull your collection percentage for the last 12 months, not last month, remember.
Speaker A:And pull it adjusted after contractual write offs.
Speaker A:This is your real number.
Speaker A:Two, pull your aging report, split it into patients and insurance, circle everything over 90 days and add it up.
Speaker A:Then sit with the total for a minute because that is money you already earned.
Speaker A:And three, put a reoccurring two hour block on one person's calendar every week for insurance follow up and put their name on it.
Speaker A:Not the team.
Speaker A:A name a person.
Speaker A:Now you have two choices.
Speaker A:From there you can go back to your practice, try to install all on your own and hope it sticks.
Speaker A:And a lot of owners you can do it and a few of them you're going to make it work.
Speaker A:Or you can let a coach who has done it for hundreds of times install it with you, hold you to it and show you the numbers moving on your dashboard every month.
Speaker A:Collections is a process problem and a coach who installs the process and holds the team to it is the fastest way to fix it.
Speaker A: ractice Pulse Pro, which is a: Speaker A:And it usually pays for itself many times over already in the very first quarter just from recovered ar.
Speaker A:Well, that's our show if it helped.
Speaker A:I hope that you share it with everybody.
Speaker A:Review and rate us on Apple and Spotify.
Speaker A:We'll see you next week.
