Weathering the storm

There is no shortage of challenges in the health care industry and throwing the current economy into the mix makes it even more interesting.

But organizations that best weather tough economic times are those that carefully monitor and optimize their cash flow.  

Cash flow is an area in which most practice managers can invest some time to yield positive results – better cash flow almost always can improve bottom-line performance.

What is cash flow anyway?

It is simply the movement of money in and out of your practice. The cycle of cash inflows and outflows determines the solvency of your practice.

If you have an outside certified public accountant prepare the financial statements for your practice, chances are that he or she prepares a statement of cash flows. This statement is an excellent management tool, worth the time it takes to thoroughly understand it because it provides a factual basis for managing cash flow and making optimal use of your assets.

The cash flow statement examines each component of your practice affecting cash flow, such as accounts receivable, inventory, accounts payable and credit terms. By performing a cash flow analysis on these separate components, you can more easily see cash flow problems and identify ways to improve your cash flow.

If you want help understanding this valuable tool, ask your accountant or banker to walk you through the analysis. Once you understand the cash flow analysis, you can identify areas for improvement.

Get your cash flow in check

Generally, a good place to start is to better manage your accounts payable by paying early and capturing discounts for doing so.

Next, look at your accounts receivable.

“Businesses don’t fail because they are unprofitable,” said Brian Hamilton, chief executive of Sageworks Inc., a national financial information research firm. “They fail because they get crushed on the accounts receivable side.”

Take time to know your patients’ payment plans up front and make necessary arrangements so you can bill accordingly. The more time elapses between your contact with patients, the less likely you are to be paid.

Of course, once you get paid, depositing the cash in the bank as soon as possible is another tool to get cash flow working for you. Many groups and clinics utilize their banks’ lockbox services to move accounts receivables into their bank accounts quickly. Some banks now offer a relatively new service – remote deposit – that allows you to scan checks from patients and submit them electronically from your own office, eliminating the need to even to go a lockbox or branch.

Once the cash is in your bank account, putting it to work for you is essential for improving cash flow.

Excess cash can be “swept” automatically for you to your line of credit or an overnight investment. The loan sweep reduces the interest expense on your operating line of credit by effectively capturing your cash flow and applying it toward your outstanding balance, thus reducing the amount of interest expense.

The investment sweep captures excess cash and puts it to work earning investment interest for you. Both of these sweeps improve your bottom line, and once they are set up, you don’t have to worry about them.

Finally, it is important to maintain proper controls on your cash so it is not vulnerable to fraud or embezzlement. For further information on fraud prevention, see my article titled “Corporate fraud – a growing concern” at


Glenda Michael is vice president and relationship manager at First Independent and leads the bank’s health care services group. She can be reached at or 360-619-4477.