Suppliers to healthcare facilities face unique financial challenges, driven in part by traditional payment methods and slow remittance practices of their customers. Many healthcare providers still rely on outdated systems like checks, lockboxes, and manual remittance processes, which create delays in supplier collections and increase the complexity of cash application.
The persistence of these methods contributes to elongated payment cycles, inaccuracies in remittance matching, and higher operational costs for suppliers. This article examines why these issues occur and strategies to manage traditional payments efficiently.
Why do Healthcare Facilities’ Payment Practices Cause Delays?
Reliance on Checks and Lockbox Processing
A significant portion of healthcare facilities use checks for payments, which are inherently slower than electronic alternatives. Lockboxes used by these providers may centralize payments but often fail to automate remittance matching for suppliers. According to the Federal Reserve Payments Study, checks accounted for 1.2 billion transactions in 2021, indicating their continued prevalence in B2B transactions, including healthcare.
Complex Payment Structures
Payments from healthcare facilities often involve insurance reimbursements, co-pays, and government subsidies. These involve remittance data delivered in fragmented formats like EDI, CSV, or PDF, requiring significant manual effort by suppliers to reconcile. The 2022 AFP Payments Cost Benchmarking Survey highlights that 51% of organizations face challenges due to the lack of standard formats for remittance information, complicating reconciliation.
Unapplied Cash and Errors
Healthcare facilities’ payments often lack sufficient remittance details, leading to unapplied cash for suppliers. The PwC Working Capital Study 2023/24 notes that better management of customer collections and remittance handling is critical to reducing working capital inefficiencies.
How to Build a Scalable AR Process to Manage Traditional Payments Without Additional Tooling
- Standardize Remittance Formats: Work with healthcare facilities to adopt standardized formats like EDI, which streamline data processing. Offering suppliers templates for remittance data collection can also simplify internal workflows.
- Implement SOPs for Cash Application: Develop clear standard operating procedures (SOPs) for handling deductions, short payments, and unapplied cash. Use rule-based approaches to allocate payments when remittance data is insufficient.
- Optimize ERP Functionality: Leverage existing ERP modules to automate repetitive tasks like bank feed uploads, invoice matching based on customer-defined parameters, and generating aging reports.
- Train AR Teams for Reconciliation Efficiency: Train AR staff to handle fragmented remittance data and identify patterns in common payment discrepancies, improving manual reconciliation accuracy and speed.
Pros and Cons of Managing AR Without Additional Tooling
Pros
- Cost-Effective: Uses existing infrastructure without additional investment.
- Customizable: SOPs can be tailored to specific customers or transaction types.
Cons
- Labor-Intensive: High reliance on manual effort increases operational overhead.
- Limited Scalability: Difficult to manage increasing transaction volumes efficiently.
- Error-Prone: Greater likelihood of errors in invoice matching and reconciliation.
When to Consider Specialized AR Software
Suppliers should explore specialized AR automation when:
- DSO Exceeds 60 Days: Persistent delays in collections affect cash flow and operational agility.
- Unapplied Cash is Greater Than 10%: High rates of unapplied cash indicate inefficiencies in payment processing.
- Manual Effort Limits Scalability: AR teams spend excessive time reconciling payments instead of focusing on strategic tasks.
- Fragmented Remittance Data: Suppliers handle diverse formats like PDFs, EDI, or emails, making manual reconciliation cumbersome.
Advantages of Specialized AR Software
- Advanced Automation: AI-driven tools match payments to invoices with over 98% accuracy, even for fragmented remittance formats. This reduces unapplied cash and manual errors.
- Real-Time Visibility: Automation platforms sync with ERP systems, offering instant insights into collections, outstanding invoices, and cash flow trends.
- Improved Productivity: Automating manual tasks saves up to 60% of AR teams’ time, enabling them to focus on resolving disputes and improving customer relationships.
- Scalability and Flexibility: Specialized platforms handle growing transaction volumes without additional labor, accommodating diverse payment methods like checks, ACH, and wire transfers.
Why Growfin?
Leading organizations like Outcomes, ShiftMed and MedUS Healthcare use Growfin’s AR Automation Software to manage the challenge of handling traditional payment methods of healthcare.
Its features include:
- SmartMatch AI: Ensures 98% payment-to-invoice accuracy during the cash application process for fragmented remittance formats.
- Seamless ERP Integration: Connects with all major cloud ERP platforms, including a Built for NetSuite SuiteApp for real-time data sync.
- Multi-Payment Support: Automates processes for checks, ACH, wire transfers, and lockbox payments.
- Proven Results: Organizations using Growfin report a 27% improvement in cash flow and a 33% reduction in DSO.
Conclusion
Healthcare facilities’ reliance on traditional payment methods creates significant challenges for their suppliers, including delayed collections, manual processing, and unapplied cash. While optimizing existing tools can help address some issues, the scalability and precision offered by specialized AR automation platforms like Growfin are unmatched.
By leveraging advanced automation, real-time ERP integration, and AI-driven reconciliation, Growfin enables suppliers to streamline collections, enhance cash flow visibility, and reduce operational overhead. Transitioning to a solution like Growfin ensures financial resilience and operational efficiency, even in the face of complex and delayed payment practices.
