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Defusing Your Practice Debt Bomb – Part 2

14 years ago
4752 views

Posted
16th July, 2010 00h00


Last week we looked at tactics you should use to prevent debt, but many of you will have existing debt to deal with right now. So what tactics should you employ to chew through your debt before it eats you? Read on… Break your debt down into four subgroups depending on two characteristics.
  1. Is it insurance debt?
  2. Is it aged debt?
If you do then use a grid like this one to categorise the debt. Though I’ve colour coded them according to difficulty to recover (red is hardest, green is easiest). Where you begin to attack the debt depends on which subgroup is the greatest. So you also need to undertake some analysis to find out where your biggest problem is. Assess each debt and place it into a subgroup. That done, you’re ready to begin. Now don’t do what most people do and pick off the easiest first. Do what’s called “Eating the Frog”. In other words, choose the biggest, ugliest debt you think you can recover and start there. Immediately! (To learn more about eating frogs I definitely recommend reading this short but very inspiring book.) Uninsured Aged Debt Uninsured debt is the bane of business. Your strategy must be direct. I recommend the following:
  1. Call to discuss the debt and make arrangements to pay, preferably over the phone with a credit card. Agree a date and time by which payment must be met, no longer than 7 days. Record this.
  2. If this is not met then call again. Discuss debt and find out why it wasn’t paid. Agree a second deadline but again no more than 7 days and personally I’d say by close of business on the day of the second call.
  3. Send a threat letter. This is polite but direct letter requesting payment (with options) be made within 7 days or legal action will be taken.
  4. Decision time. Depending on the size of debt you may want to take things further or you may feel it isn’t worth the hassle.
  5. If you want to take action then consider the following services (UK): a) Small claims court online (debts less than $100,000) https://www.moneyclaim.gov.uk/web/mcol/welcome b) Engage a debt collector – but beware, many will not do more than what I have already described for their cash. And claims that go to court may involve further costs. Plus you should choose carefully as a heavy-handed approach may damage your reputation.
  6. If you decide against action, then write it off and move on. Focus on helping good clients than wasting more and more time on the bad.
If handled professionally, at each step in this process you will find clients paying down debt. But be prepared to exercise judgment, there is a difference between ‘can’t pay’ and ‘won’t pay’. Plus, some will withhold payment due to unresolved complaints, and this perhaps is an opportunity to repair damaged relationships. Uninsured New Debt Why I this still happening? No point reducing the old debts if all you’re doing is gaining new ones. Go back and read part one to stop this debt collecting. But don’t leave it to age. Implement the same procedure as above and recover it quickly. Insured Aged Debt More and more we see insurance firms dragging their heels with payment, sending claims to loss adjusters and fobbing practices off with excuses and delays. (Read my pet insurance post to learn why.) This is bad form. My advice is to choose a better insurance company to work with. There are two practical steps you can take to attack this debt.
  1. Hassle factor – get on the phone. Call every day if necessary to seek explanation for the delay. If there’s no problem then where’s payment? Expect better service and if you aren’t getting it then look elsewhere for an insurer. There are new options available.
  2. Look in the mirror. Is the problem internal? Is the company waiting for supporting documentation from your practice or a previous practice? Has a vet not signed the right section of the form? Is the form still sitting in an insurance tray? Get on it – NOW!
This type of debt can be taken for granted as it is assumed it will be paid. But if it is taking 90 days to collect then you have a cash flow problem that could lead you drag you into difficulties Insured New Debt This subgroup is the least problematic of all. But monitor it closely, and try not to have too much going through the books. Better for you if a client pays, then claims back from the insurer. Is your team offering direct claims by default? Is that the policy? Is it a good policy? The answer to the last question may be yes, but your assistants shouldn’t decide on policy by default. Analysis, Delegation & Blacklisting Clients The key to good debt management is careful analysis. The cumulative debt figure can be misleading so do break it down into smaller, meaningful chunks. This can take time. But it doesn’t take a veterinary degree…(see where I’m going with this?) So it represents an excellent opportunity for delegation of a very important task. Who in your practice has a head for figures and is good with clients on the phone? Handing over this task means that your business improves its cash position, you have more time to work as a vet and someone in your team gets to develop her skill set. Which part of that is bad? And now a word on blacklisting clients. Personally I’d make sure you have a list or a note on your computer system that means all staff can easily identify when a bad debtor enters the practice. If you retain them as a client, then I’d strongly recommend you take money upfront. If they have none then you are not obliged to treat their pet (save the basics of emergency care). The idea of a name and shame notice board up in reception strikes me as a serious PR own goal and quite possibly illegal. Annoying as debtors are, better to focus on preventing them, than wasting time and effort with a childish/unprofessional display of frustration. Dave’s Tuppence-worth I’ve tried to give you some advice on how to manage your debt list. How you implement your own debt management plan is up to you. Your own approach will no doubt be influenced by factors like your level of compassion and your business needs. Just don’t forget, a business needs one thing more than any other – cash. Good debt management will see that your business never runs dry of this most valuable of assets.

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