Solutions to Accelerate the Cash Conversion Cycle
Author: Vice President of Healthcare Banking Oscar Gonzalez
With a complex payer mix and manual paper processes, it’s no surprise that the average cash conversion cycle in healthcare is 64 days. That’s a period of over two months before a facility receives any type of payment for service. This “care now, collect later” model can put a strain on facility’s cash flow and bog down staff with labor-intensive accounts payable and accounts receivable processes.
The good news is that there are steps healthcare providers can take to accelerate their cash conversion cycle, improve the patient experience, increase float and reduce manual tasks.
At a time when margins are compressing, automating the accounts payable (AP) process can improve efficiency, reduce paperwork and streamline operations, as experienced during the COVID-19 pandemic, when some administrative personnel began working from home. The savings of cutting back on paper and postage alone can quickly add up.
A few other key benefits of automating the AP process include:
As providers look for new ways to improve efficiency and margins, AP automation and reconciliation is an easy win. There are AP automation systems that integrate into providers’ existing systems that can be up and running in a few short months.
Streamlining AP processes can make a valuable impact but improving the accounts receivable (AR) process can make a tangible impact for facilities as well.
AR processes can be simplified using a tailored Medical Lockbox service. Customized Lockbox services allow facilities to convert receivables quickly, proficiently, and accurately. When tying a Lockbox service with a healthcare remittance solution, AR processes can be significantly streamlined and automated. Remittance solutions reconcile payments and paper Explanation of Benefits (EOBs) are converted into customized 835 files. This enables healthcare providers to post payments faster while reducing administrative costs and improving accuracy.
Facilities should also evaluate how patients are making their payments. Do patients have to write out a paper check and mail it in to pay you? Writing out checks is inconvenient for patients and it lengthens hospitals’ cash conversion cycle. This is where an online payment portal can make a big impact. These portals make it easy for patients to enroll in payment plans, set up automatic payments and manage their account, reducing some burden on back office staff. Some online portals even connect to clinical information, allowing patients to view their chart or set up appointments.
In addition to providing patients with a convenient way to pay, there are patient finance solutions available that help patients pay for the care they receive. Nineteen percent of U.S. households have medical debt, with the median amount owed totaling $2,000. This is where patient finance solutions come into play. Patient finance solutions help meet the needs of patients without negatively impacting hospital profitability. Many patient finance solutions also offer patients competitive rates compared to other payment options, like credit cards or payday loans.
While margins remain thin, it’s important for providers to evaluate how they pay and get paid and how payment solutions can shorten the cash conversion cycle. By automating manual tasks and making payments easier for both accounting teams and patients to manage, hospitals can make an impact on the bottom line.
Interested in learning how FNBO can help shorten your facility’s cash conversion cycle? Contact our Healthcare Banking team today.
About the Author
Oscar Gonzalez is the Vice President of Healthcare Banking at FNBO, where he joined in 2007 and has held numerous commercial banking positions. He grew up in Mexico City where he attained his Bachelor's in Economics and interned at the Central Bank. He then moved to Spain and obtained his Master's in Banking and Finance, and finally moved to the United States and received his MBA with a concentration in corporate finance.