How Do Accounts Payable And Receivable Affect A Medical Office?

Healthcare finance involves the proper management and control of the monies that are received in the practice, which are referred to as accounts receivable, as well as the monies that are spent in the practice, referred to as accounts payable. I would like to stress the importance of gaining control over these financial factors to promote normal functioning, predict development, and keep the practice lucrative. In the following paragraphs, you will find a brief of how accounts payable and accounts receivable processes occur in a medical office.

Accounts payable in a medical practice refers to the money which the medical practice owes to any of its suppliers.

Accounts payable on the other hand refers to the amount of money that a medical practice owes to its outside suppliers for the goods and services that have been purchased. Common accounts payable expenses in a medical office include:

- Equipment and sundries
- Chair, desks, tables, facilities such as refrigerator, microwave oven, etc.
- Medical software subscriptions
- Other building services such as refuse collection and cleaning have been centralized and contracted out.
- Some of the common services include; electricity, gas, water, phone, internet, and the like.

The practice incurs accounts payable liability since they order inventory, equipment, and other services on credit. To eliminate the instances whereby some patients default on their payments, the practice must know when payments are due. Other benefits of paying accounts payable include guaranteeing the vendor’s continuous provision of necessary products and services in the practice.

What does accounts receivable mean within a medical practice?

Accounts receivable mean the amount that patients and health insurance organizations owe the medical practice for services offered. This is a concept that is as good as the patient not paying for their care through a health facility but instead receiving a bill. The revenue cycle team submits claim forms to insurance companies with details of service delivery and the amount charged. While the claims are processed at the insurer level, the approved amounts are captured in the practice’s accounts receivable and are usually collectible at a later date.

Other amounts such as the patient's responsibility like copayments and deductibles also go to accounts receivable until the accounts balance is cleared. The practice’s accounts receivables have to be closely managed, and the practice must ensure that any outstanding balances are collected.

Accounts payable and Receivable are among the critical factors that any organization should ensure they consider when managing its operations.

Specifically, monitoring of AP and AR is important in getting a clue of the practicing financial health as well as the operational performance. Not paying for the Accounts payable on time affects the credit status of the practice and also causes some essential suppliers to be offended. Over-emphasis of accounts receivable balances prevents the generation of a steady cash inflow which is essential for meeting payroll expenses, vendors’ payments as well as other operating expenses that are within the practice.

Proactively managing accounts payable and receivable can also influence decisions around practice growth and profitability:

- The logic of the evaluation of payment cycles is that it assists in the determination of the right cash flow for expansion programs.
- It also identifies different peak months of account receivables to cater for situations where the cash inflows are irregular.
- A receivables to payables turnover ratio comparison uncovers growth prospects.
- Some of the areas that can be discovered by assessing the delay or problems that exist in the revenue cycle include:

There are several important strategies that medical practices can employ when it comes to managing their accounts.

- As much as possible, ensure that the billing, claims, and payment tracking systems are all automated to reduce the likelihood of mistakes and to facilitate faster payment.
- If there are accounts that remain unpaid or paid later than expected, it is important to contact the customer frequently on the issue.
- Provide poor patient with an opportunity to purchase their expensive medications or treatments by offering payment plans to increase the chances of collection.
- Pay your credit card balances in full every month if possible, this will save you from paying charges on the amount of credit you used.
- Now compare the ratios of accounts payable and accounts receivable with the industry standards.
- It is also recommended to include the accounts payable and receivable in the regular financial checkups.

To sum up, it can be stated that management of accounts payable and accounts receivable in the early stages gives more insight into the current financial position of medical practices as well as prepares them to make wiser decisions for future development and profitability. By employing the right tools and dashboards, what was once a mundane and time-consuming responsibility for payables and receivables can be brought more efficiently to medical office administrators and their staff.