Collect overdue accounts

Mark Opperman, CVPM

Veterinary Economics June 1999; pp. 60-63

Collecting overdue accounts is one of the most displeasing aspects of the veterinary profession. This article has several pointers on how to set policies for your practice to help alleviate bad debt clients and how to collect past-due balances.

Contrary to popular belief, a small accounts-receivable balance actually indicates good financial management. Companion practices should have an accounts receivable of about 1.5 – 2.5% of the gross income. Large animal practices should be more like 8 – 10%.

· Account balances over 90 days past due are the most likely not to get paid and should be avoided if at all possible.

• Setting firm credit and collection policies make it easier for the staff to relay these policies to clients and easier to enforce.

Set a credit policy

· Commit to writing and sticking to a credit policy

• The policy should include the definitions of what acceptable and unacceptable payment terms are. These will act as guidelines to help make consistent decisions.
• Review these guidelines (include staff responsible for making monetary collections) annually.

1. How will you accept payments? Cash, checks (local/nonlocal), major credit cards (which ones?)

2. Payment in full is expected when services are rendered (have a highly visible sign at your front desk that states this)
3. If a client can’t pay the entire bill, suggest he or she apply for a health-care credit card. Once authorized, charge the balance to that card. (CareCreditÒ 1-800-300-3046)
4. If extending hospital credit to a client, the practice manager or a practice owner must approve it. Note this on both the clients hard file copy and in the computer.
5. Holding payments: the practice manager or owner must approve first, then the client may pay 50% of the bill at discharge and leave a check for the balance which can be held for up to 30 days. If the bill is large (i.e. over $400, take 2 checks, one for the first 30 days and one for the second 30 days)
6. First time emergency or hospitalized patients, a written estimate should be given of services to be rendered and a deposit of 50% of that estimate should be taken prior to starting treatment. The balance due at the time the pet is released.
7. If other arrangements are needed, they must speak to the practice manager. Clients should not leave the hospital unless one of the above terms is met.
8. Past due balances (30 days) are subject to a 1.5% monthly service charge with a minimum of $4.50 per month.
9. A payment installment agreement should include the following:
   a. the date
   b. the agreement of how much will be paid to whom (hospital name) on which dates (specific) or a total by (specific) in what amount and beginning on what date
   c. a clause stating that "if any installment payment or the full amount is more than five days overdue, the hospital will consider the entire balance in default. From the date of default, the balance will incur a 1.5% monthly service charge (a minimum of $4.50 per month). This charge applies to the previous balance without deducting current payments."
   d. a clause stating the signor will agree to pay all collection agency and attorney fees necessary to collect the full amount due without any relief from valuation or appraisement laws.
   e. a waiver stating that if presentment for payment, protest, notice of protest, or nonpayment of the account occurs, that all principle, interest, service charges, and collection fees are due immediately should the account be defaulted.
   f. a statement that states that signature of the document verifies that the client has read and understands the installment agreement including terms and conditions.
   g. The client should sign as well as print their full name, occupation, full address, employer and employers full address, home and work phones, and social security number.
   * A copy of this installment will be given to the signer upon request

Be consistent but flexible

• Once a written credit policy has been established, follow it.
• Be firm about payment expectations and avoid letting client’s take advantage of you.
• You can utilize previous credit history with your clinic when deciding on a particular client’s payment options. Established clients rarely allow balances to go unpaid for a long period of time.
• Use caution in extending credit to first time clients.
• WARNING SIGNS: "Don’t worry about payment, money is no problem."
• Do consider these factors:

1. Do you value this client/relationship with the practice? If not, refer the case somewhere else if the patient is not in a life threatening state.
2. Is the pet’s situation life-threatening? If so, provide supportive care until an agreement can be reached.
3. Are there other medical or surgical alternatives possible? Provide supportive care until an agreement can be reached or offer, compassionately, euthanasia.

• Exceptions to the rule: Make these few and far between, but if a client is genuinely interested in the pet and makes reasonable requests or alternatives, find a way to make it a win-win situation.
• YOU CONTROL THE SITUATION
• Set up a "charity account" on the computer and log in any services given that you know won’t be paid, charge the normal hospital fees and transfer the balance to the charity account. You can evaluate the amount in this fund at the end of the year for your generosity.

Collect bad debts

Create an aggressive collection policy to keep the number of past-due balances low and minimize the number of accounts that have to go to collection.

1. Send invoices on the first day of each month.
2. After 30 days with no payment, add a monthly 1.5% service charge (with a minimum of $4.50 per month) to the next months invoice.
3. If after 60 days no payment has been received, mail the statement (plus the service charges) and a collection letter.
4. If after 90 days no payment has been received, the third statement should have all additional service charges plus a final collection letter included.
5. 15 days after the 90-day invoice call and request payment in full.
6. 15 days after the phone call, review the account, request a credit report from the local credit bureau, and forward the information (if collectable) to a collection agency. Write off the debt and make their files inactive (especially on the computer)
7. Mark the medical record and computer with a specific code (i.e. a red dot) to warn everyone this is a client who has been sent to collections and is a "cash only" services. All prior debts must be paid in full prior to this client receiving further services.
8. After 120 days accounts may be send to an outside agency or a lawyer.

• Agencies: for any size account balance.
• Pre-pay agencies – pay them before they begin collection, usually require a collection claim for each account given to them to collect, usually keep 30 – 40% of the amount collected
• Percentage basis agencies – take a percentage of the total amount collected, usually keep 40 –50% of the amount collected, but work harder to get the money
• Collection agencies associated with a credit bureau are usually the most effective due to the threat of a bad credit rating for the client.
• Lawyers are usually more effective, but may only accept larger accounts (i.e. >$200)
• Most states let you collect on a bad debt for seven years, you may repeat collection proceedings each year.

1. First collection letter should include:
   a. addressed to the client name
   b. a statement stating nicely that you are aware of their delinquent account status
   c. a statement that addresses the owners/hospital goals for high-quality care and concern for a valued client that has allowed their account to lapse.
   d. a statement allowing the client the privilege of contacting you promptly to rectify the situation otherwise the client's credit status may be jeopardized.
   e. a statement of how much is owed in total due immediately
   f. a premature thank you for them addressing this matter quickly.
   g. your signature as practice manager/accounts receivable, etc.
2. Final collection letter should include:
   a. addressed to the client
   b. a statement of the number of times of attempted contact and the failure of the client to respond or indicate repayment.
   c. a statement that you will be referring this account to your attorney for collection.
   d. a statement saying "In addition, any future services you request will require full payment of your outstanding balance plus cash payment at the time we provide new services."
   e. a statement that the client will be responsible for all attorneys’ fees and litigation costs involved in collecting the outstanding balance as soon as the account has been submitted to the attorney.
   f. Final statement of amount owed and by when to avoid sending the account to a collection attorney. It's nice to say that your hospital regrets having to take this action, but must do so.
   g. your signature and contact information