Have You Checked Your A/R Lately? 5 Steps To Audit Your A/R

February 20, 2024 | 4 min read

How’s your DSO’s financial health? To get a handle on your numbers, you must know where you stand with your accounts receivable (A/R) — it’s an essential financial management practice for ensuring the accuracy and integrity of your financial data. 

Plus, getting your A/R ducks in a row is essential for a successful dental software migration to help you transition to cloud-based dental software and support your digital transformation journey — improving operational efficiency, increasing profitability, and enhancing the patient experience.

The Importance of an A/R Audit

An A/R audit helps ensure the accuracy of your financial statements by verifying that the reported receivables match the actual amounts owed by patients and payers. These audits help ensure compliance with regulatory standards and accounting principles while supporting accurate decision-making and financial planning. 

The process helps identify and resolve overdue balances to improve cash flow and revenue cycle management (RCM). You can see what’s blocking your revenue flow and where you may lack resources to ensure timely collection of outstanding receivables to improve your DSO’s liquidity and financial stability.

Meanwhile, regular A/R audits help prevent revenue leakages by identifying receivables-related discrepancies, errors, or fraudulent activities. You can evaluate internal controls and strengthen them to mitigate receivables management risks. 

Moreover, you should perform an A/R wind-down when you upgrade your dental practice management system (PMS) to ensure clean data migration. You’ll have a much easier time preparing for and executing this process if you’ve been performing regular A/R audits and keeping a close eye on your financial data.

Check out our migration white paper for a detailed plan on how to do an A/R wind-down.

The Ultimate Guide to a Hassle Free Migration

5 Steps For an Effective A/R Audit

Here’s how to collect and understand your A/R data and take action to improve your financial health:

1. Review Aging Reports To Identify Overdue Balances

Generate aging reports from your financial system and identify accounts with balances in the “60 days and beyond” categories. Investigate reasons for these overdue payments, address issues,  resolve disputes, and implement a collection workflow (e.g., send out e-statements and reminder emails) to close out the balances.

2. Reconcile With General Ledger to Ensure Accurate Financial Records

Generate an A/R sub-ledger report and compare the total A/R balance with the A/R account in the general ledger — the total receivables should match. Otherwise, identify, investigate, and resolve discrepancies to ensure the AR balances in your financial statements are accurate. 

3. Verify Outstanding Balances with Patients and Payers

Use a claim tracking tool to identify pending claims and unpaid invoices. Contact patients and insurance payers to validate the AR balances and compare the confirmed numbers with your records. Use this opportunity to strengthen patient relationships by fostering trust and transparency with clear patient communications. 

4. Review Financial Policies and Patient Payment Terms

Evaluate if your current patient payment terms support effective collection. Consider acceptable forms of payment, expectations for co-payments or upfront payments, and available financing options like installment plans. You may support your policies and payment terms with an eligibility verification process and a transparent fee structure.

5.  Compare Bad Debt Reserves With Estimate Uncollectible Amounts

A bad debt reserve is an estimated amount of receivables your DSO doesn’t expect to collect within a given period. You should estimate the potential amount of uncollectible receivables and ensure you have sufficient bad debt reserve to cover potential losses. Otherwise, adjust your reserve amount based on your audit findings.

Learn A/R Best Practice To Support Dental Software Migration

Clean A/R data gives you the agility to move to new dental software without a lengthy and costly preparation period. Whether you have plans to transition to a new PMS right now, you should keep your accounting and revenue cycle management (RCM) processes in tip-top shape to pave the way to future success.

Download our white paper, What to Expect When Switching Practice Management Systems and How to Master Your Data Migration Journey, to get more insights and practical steps on keeping your financial data ready for critical transitions.

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