Managing cash flow is an integral part of operational sustainability for businesses in thehealthcare sector. With changing regulations from federal, state and local governing bodies,unpredictable payment cycles, and high operational costs, healthcare business finances can bea challenge.
Here are some tips from Quatrro accounting and finance experts on how to keep yourhealthcare organization thriving by maintaining a healthy cash flow.First, let us dive into whycash flow can be such a challenge.
Challenges for Healthcare Cash Flow Management
The healthcare industry is uniquely complex. Operations depend on different and sometimesunreliable revenue sources, with each having its own set of payment schedules and terms. Thisdiversity, combined with evolving healthcare policies and the breadth of information businessesneed to parse contributes to the complexity of cash flow management in healthcare.
One aspect that complicates cash flow in healthcare is the process for insurance claimsubmission and reimbursem*nt. Healthcare providers have to navigate through an intricatesystem of insurance claims, which often involves tedious processes and lengthy waiting periods.
Each insurance company has its own rules and policies regarding claim submission. If theserules are not adhered to meticulously, it can result in claim denials and further delayedpayments and ultimately impact your financial models projections that are critical in makingmajor decisions.
All this to say, that we intimately understand there can be a considerable lag between when thehealthcare service is provided and when payment is received— a gap that can severely strain ahealthcare business's cash flow if it is not addressed.
The increase in patient financial responsibility, largely due to high-deductible health plans,introduces another layer of complexity. Patients, being less predictable and reliable thaninsurance payers, can cause fluctuations in cash flow with delayed or defaulted payments.
What Are the Signs of an Impending Cash Flow Crisis inHealthcare?
In the healthcare industry, recognizing the early warning signs of a cash flow crisis can be thedifference between operational success and financial struggle. Let's explore some keyindicators that signal a potential cash flow issue:
![Expert’s Guide: All About Cash Flow Management in Healthcare - QBSS (2)](https://i0.wp.com/www.quatrrobss.com/wp-content/uploads/2023/08/Great-Resignation.png" "Expert’s Guide: All About Cash Flow Management in Healthcare - QBSS (2)") | Inconsistent Cash PositionAn irregular or unsteady cash position can indicate aproblem. If you find it challenging to predict your cash inflows and outflows, it's a signthat your cash flow management might be in trouble. |
 | High Account ReceivablesA high number of outstanding patient invoices orincreasing days in accounts receivable can be a warning signal. If your healthcarebusiness has to constantly chase down payments, it could lead to a cash flow crunch. |
 | Limited GrowthIf your organization's growth rate has stagnated or declined despitefavorable market conditions, it might be a result of inadequate cash flow limiting yourability to invest in growth opportunities. |
 | Increased Reliance on CreditIf your healthcare business frequently depends on short-term debt to cover operational costs, it's a red flag indicating a potential cash flow issue. |
 | Inability to Meet ObligationsDelayed payments to suppliers, creditors, or employeescan suggest a strain on your cash flow. |
 | No Access to Short-term FinancingA lack of access to quick, short-term finance canturn a temporary cash flow issue into a full-blown crisis. |
 | Ineffective Inventory ManagementIn healthcare, too much inventory, particularly ofhigh-cost items like medical equipment and pharmaceuticals, can tie up a significantamount of your working capital. |
By keeping an eye out for these signs, healthcare businesses can identify potential cash flowproblems before they escalate, allowing them to proactively address issues and secure theirfinancial stability.
Best Practices for Healthcare Cash Flow Management
Effectively managing cash flow in the healthcare industry requires planning, rigorous execution,and constant monitoring. Let's delve into some of the best practices healthcare businessesshould consider:
![Expert’s Guide: All About Cash Flow Management in Healthcare - QBSS (9)](https://i0.wp.com/www.quatrrobss.com/wp-content/uploads/2023/08/employee-retention.png" "Expert’s Guide: All About Cash Flow Management in Healthcare - QBSS (9)") | Monitor Your ExpensesIt is crucial to have a clear and detailed view of where yourmoney is going. This includes operational costs like salaries, equipment maintenance,inventory, and technology investments. Each expense should be categorized andtracked routinely. Benchmark your spending against other similar healthcare businessesto identify any discrepancies. Every dollar saved from unnecessary expenses cansignificantly improve your cash flow. |
 | Implement Accurate ForecastingAnaccurate financial forecast is a powerful tool. Useyour organization’s past performance, market data, and benchmarking information toproject your cash flow under various scenarios—best-case, worst-case, and expected. Arolling budget based on these forecasts can guide your financial decisions, aid inresource allocation planning, and instill confidence in potential investors or lenders. |
 | Optimize Supply ChainsEfficient supply chain management can significantly improvecash flow. Understanding demand fluctuations can help plan production and minimizeinventory costs. Identify potential supply chain risks and plan appropriate responses.Negotiate favorable terms with your suppliers—discounts for early payment can free upcash that might otherwise be tied up. |
 | Maintain Adequate Working CapitalKeep sufficient liquid assets available to cover day-to-day operational expenses and manage market downturns. This could mean onlypaying bills on their due date unless early payment discounts are available, or offeringincentives for early payments from your own customers to speed up cash inflow. |
 | Create an Emergency FundAn emergency fund acts as a financial buffer during slowseasons or unexpected downturns. Strive to have cash reserves that cover betweenthree to six months of operating expenses to ensure your healthcare business canweather a financial storm. |
 | Pursue Strategic GrowthRapid expansion can strain your resources and leave yourorganization without sufficient working capital. Plan for growth, but ensure your businesshas the financial cushion to support that expansion. |
 | Secure Financing Before You Need ItApply for a business line of credit duringfinancially stable times. This puts your healthcare business in a better position tonegotiate favorable terms and have a safety net ready when required. |
 | Establish Accounts Receivable Policies and ProceduresConsistent policies for issuinginvoices and ensuring timely payments are crucial. State your payment terms clearly onevery invoice and have a plan for slow-paying customers, ranging from reminders tothird-party collections involvement if necessary. Quatrro offers evaluations of yourcurrent policies. |
 | Optimize Your Accounts Payable WorkflowAn effective accounts payable workflowensures timely payment of bills, fostering good relationships with vendors and suppliers.It should prioritize and track invoices, maintain up-to-date supplier information, and havefraud detection measures in place. |
 | Conduct Regular Financial AuditsDon’t just wait until a formal audit period – make sureyou are conducting regular audits of your accounting records, cash holdings, andfinancial data ensure you have a clear picture of your finances and can help identifyareas for improvement. It also minimizes the potential for fraud and mismanagement tohappen along the way. |
QBSS: Transforming Healthcare Cash Flow Management
As a leading tech-enabled outsourcing firm, QBSS is revolutionizing the way healthcarebusinesses approach their financial management, accounting, and technology services.
Our specialized teams offer highly personalized services, designed to cater to your uniquehealthcare business needs. We understand the healthcare industry's nuances and our servicesare designed to address these unique challenges.
QBSS brings an innovative approach to financial management, providing your healthcarebusiness with the robust backbone it needs to grow and succeed.See how we can help youtoday!
