AR is a State of Mind

You may have noticed that I didn't post last week.

Sorry. The voices were not saying nice things at all, and they have decided that it is fun to twitch my left eyelid - hello stress my old friend.

Funny thing about taking time off from work when you are a sole-proprietor, not only do you not make money during that week, but it takes a couple of weeks for the cash flow to get restarted. Oh, by the way, it's April and 2009 taxes are due along with the 1st payment of 2010 estimated taxes.

Let's see, what could make this better? I know, how about a stack of notes listing patients who want refunds of overpayments. Yeah, that does it. Not only do we not have money come in, we are giving back a few dollars here and there. That's fun. It's like Christmas.

It has brought up an interesting business question.

What do you think of when you think of your "Accounts Receivable"?

I'll give you my answer in a second, but first a brief story about my youngest daughter. Maddie and I were walking home from church yesterday (we live about 2 blocks from church), and she was really excited because she was going to a birthday party for lunch (that is an entirely different story - let's just say that my wife gets Mom 'o the Year for taking Maddie to that 4+ hour 5-year-old extravaganza).

Anyway, Maddie and I are holding hands and she is singing - cuz, I mean, why not. . .your 5, life is good, you have your priorities straight. So she is singing just nonsense words, and then I notice that she is walking behind me a little bit and walking very deliberately - if you have a child, you know that walk when your kid is trying not to step on a crack - just a different gait. Yeah, that's what she is doing. Except she isn't trying to avoid cracks; she is trying to walk in my shadow. Then she starts singing, "I'm walking in daddy's shadow, I'm walking in daddy's shadow. . ."

Get ready, deep thought from an emotionally exhausted business owner daddy.

See my kids walk in my shadow just like I walked in my dad's shadow. My shadow is simply an outline of who I am as a whole person. Shadows do not have emotions, they do not smile, they do not frown or cry. Your shadow is simply you. My daughter was excited to walk in my shadow. That's a pretty heavy burden for me right now. Not a bad burden, just heavy/deep/profound. I hope that I live a life worthy of my children walking in my shadow.

Now, I also hope that my shadow gets less round (are 6 packs visible in shadows? I know fat rolls are).

OK, back to Accounts Receivable.

As an insurance practice, I have a fairly consistent AR. It usually averages about 3/4 of my monthly collections in under 30 days. My 60+ is very low, and we stay on top of that. I look at my AR as my little savings account. I know that money will be coming in next month, and it keeps me calm because it is a steadying influence on our cashflow. Great month followed by a slow month, at least the money charged in the great month will be coming in during the slow month. During last March, however, we dropped our AR to 1/4 of our monthly collections. This was due to me being out of the office over spring break and then having a very slow (VERY SLOW) last 2 weeks of March.

Uh, oh. Panic attacks. That AR is getting dangerously close to $0.


Which got me to thinking. If I was a cash-only practice, I would want my AR to be as low as possible - right? Because I accept insurance, I'm thinking that I am being brainwashed a little to believe that a large under-30-day AR is a sign of a healthy practice.


What do you think? How should I look at my AR? What do you do to even out the cash flow?

BTW, my daughter won a mini-football at her birthday party - a Florida Gator football. What the *&^%# is a UF football doing in an arcade in Kansas City???? I would mail it down to Gammichia, but I'm not spending the postage for that piece of junk. :-)


Have a great week! Don't forget to send Uncle Sam his birthday money on Thursday.


ric