We’ve all heard about the importance of keeping accounts receivable under control—often from experts like us. Accounts receivable represent money your practice has earned but not yet collected from patients or insurance companies. It’s revenue you’ve already worked for but can’t deposit until it’s received.
That’s why every practice should have a set schedule for managing receivables. Every two weeks, your office manager or senior front desk employee should send statements and follow up on outstanding claims. The goal is simple: make sure every dollar earned is collected and properly recorded.
The Hidden Liability of Patient Credits
There’s another side of the financial equation that often goes unnoticed – credits on patient accounts. Left unchecked, they can quietly undermine your financial health.
You’ve probably heard (or said) it before: “It’s better for us to owe a patient than for a patient to owe us.” Understandable sentiment, but not necessarily wise.
For active patients, small credits may be applied at future visits. But if staff overlook existing credits or “round up” a patient’s portion, credits can multiply. For patients who don’t return, those credits can become trapped in your receivables report.
Unaddressed credits pose three major risks:
They distort the true receivables balance.
They may violate state unclaimed property laws.
They can create significant problems during a practice sale.
How Patient Credits Build Up
Credits often accumulate through:
Underestimating insurance payments. Some practices intentionally underestimate coverage, leading to overpayments that never get applied.
Prepayments and treatment changes. When patients prepay and treatment plans shift, unaddressed credits remain.
Entry errors. Typos, duplicate write-offs, or mishandled dual coverage can all create false credits.
Coordination of benefits issues. Secondary insurance may overpay if not coordinated with the primary carrier.
Unclaimed Property Laws
Most states require you to make a good-faith effort to refund patient credits. If you’re unable to reach the patient after a set dormancy period (typically one to five years), those funds must be turned over to the state treasurer. Ignoring this process can result in penalties and fines.
The Practice Sale Surprise
Imagine preparing to sell your practice, only to discover hundreds of thousands of dollars in patient credits that must be refunded or deducted from the sale price. We’ve seen it happen.
One Prosperident client faced this exact nightmare—an accountant uncovered $400,000 in old credits just before closing. The seller had to refund or deduct the entire amount, instantly shrinking their nest egg and creating unnecessary stress that routine oversight could have prevented.
Credits Can Signal Embezzlement
Significant unexplained credits can also indicate employee theft. If your practice suddenly shows a surge in credits, investigate further.
Best Practices for Managing Credits
Audit patient credits alongside your regular receivables reviews every two weeks. Have a senior team member verify each one, and personally review a detailed receivables report monthly. Regular oversight keeps staff accountable and protects your bottom line.
When addressing credits:
Determine if the credit is legitimate. Was it caused by staff error or a genuine overpayment?
Identify who it belongs to. Patient, responsible party, or insurance company? Be extra cautious with cases involving divorced parents—refunds must go to the payer of record.
Legitimate credits can’t simply be written off. You are legally obligated to return them or handle them under your state’s unclaimed property rules.
Preventing the Pile-Up
To stop credits from snowballing:
Conduct regular audits. Review credits biweekly and ensure accuracy.
Refund promptly. Once verified, issue refunds quickly to avoid compliance issues.
Establish a policy. If immediate refunds aren’t practical, refund within a set time (e.g., six months).
The Bottom Line
Proactive credit management safeguards your finances, ensures compliance, and maintains patient trust. Overlooking even small credits can lead to large liabilities that jeopardize practice sales, retirement plans, and financial stability.
Every dollar counts—handle them all with care.
Read more from Prosperident about AR oversight in this article: What’s Not in Your Wallet? Hidden AR Risks That Could Cost You Thousands – The Profitable Dentist.
