October 3, 2024
Step into a successful dental practice, and there's a sense of energy in the air.
There are phones ringing off the hook, patients waiting to be seen, staff bustling about to keep everything running smoothly — and this is just the tip of the iceberg of a successful practice.
Behind the scenes lies a complex network of back-office tasks that keep the practice running smoothly. From tracking down the right suppliers to managing insurance claims and patient payments, the behind-the-scenes work is just as crucial as the patient care itself.
The last thing anyone wants to worry about is a cumbersome accounts payable process. Many practices resort to putting portions of their AP on autopilot by having invoices auto-paid via their practice credit card.
Credit cards have a time and a place for use in business. That said, while it seems convenient to use a credit card whenever a supplier invoice lands on your desk, this habit can lead to a host of problems down the line. In this post, we'll dive into the pitfalls of using credit cards for supplier payments and explore how dental practice accounting can be transformed through smart automation.
It's tempting to simplify your accounts payable process by using a company credit card for all your supplier payments. After all, it means one less task on your never-ending to-do list, right?
But before you put those invoices out of sight and out of mind, it's crucial to understand the potential risks involved.
Loss of financial control
This is the single, biggest risk of using a credit card to manage supplier payments.
With no reconciliation or scrutiny over invoices from suppliers, it's all too easy to lose track of expenses and accumulate debt.
You could be missing out on credits, chargebacks, and other financial benefits simply because it's hard to keep track of all the moving pieces when everything is lumped together on a credit card statement.
Moreover, credit cards make it easier to lose sight of how much you're actually spending each month. This is a problem for single-location practices and only becomes more severe as more locations enter into the equation.
Seemingly small charges compound and can quickly balloon into a significant sum, leaving you with an unexpectedly high bill at the end of the billing cycle. This lack of visibility and control can be detrimental to your dental practice accounting and overall financial health.
Cash flow issues
Cash is the lifeblood of any business. It is the key to sustaining your business as well as facilitating any growth opportunities.
Yet relying on credit cards for supplier payments leaves your practice open to so many potential cash flow issues. This includes things like interest charges, unpredictable payment amounts, and the hassle of reconciling statements. It's easy for your cash flow to take a hit.
Before you know it, your practice credit card could have missed or late payments which will have a ripple effect on your practice's financial standing.
Late fees and interest charges add up as quickly. Trying to catch up with these balances then becomes a puzzle of payments in the sense of “who gets paid when”. This runs the risk of damaging your relationships with suppliers and your credit score.
What’s worse is should both cash and credit become an issue, it puts your entire business at risk.
Less bargaining power
Using a credit card to pay suppliers could be costing you more money than just interest and payment fees. You could be diminishing your bargaining power by not dealing directly with your supplier.
When disputes arise or you need to negotiate payment terms, having a credit card company involved in the middle will definitely complicate matters. You may find it harder to resolve issues directly with your suppliers when you have to go through the credit card issuer first.
On the flip side, paying suppliers directly often comes with perks like early payment discounts or access to promotional items. Vendors may even prefer direct payment methods to avoid the fees associated with credit card processing. By cutting out the credit card middleman, you can strengthen your supplier relationships and potentially score some great deals for your practice.
Accounting issues
Relying on credit cards for dental practice accounting can create a bookkeeping nightmare.
Credit card statements will lump everything all in one statement. It's hard to verify whether you've received the correct orders when all you have to go on is a generic line item on your statement. This lack of clarity means you'll likely end up spending hours manually reconciling your accounts, hunting down missing information, and trying to identify potential double payments or missed payments.
Reconciling these charges within your accounting or bookkeeping software can become a mess. The result is a cumbersome reconciliation process that's far more time-consuming compared to other payment methods like checks or ACH transfers.
Not only is this a massive drain on your time, but it also leaves more room for error and could even lead to additional scrutiny during audits.
Using a credit card may seem convenient but as we've explored in the previous section, this approach can lead to a host of challenges if you simply set invoices to autopay using your credit card. So what’s the alternative? Fortunately, there are several. Let's take a closer look at three of these options.
ACH or electronic payments
ACH or digital transactions are likely familiar and likely the reason you switched to using a credit card instead. Yet they are still one of the most effective alternatives to credit card payments. While ACH (Automated Clearing House) may be viewed as making the process more manual, the range of benefits can’t be matched by a credit card
For starters, using ACH can reduce the fees you’re paying whether those are interest, late payment, or even individual transaction fees. Credit card fees can range from 1.5% to 5% of the transaction amount, depending on the card type and merchant agreement. In contrast, ACH fees are typically just a flat per-transaction fee, often under $1.
The more transactions you complete switching back to ACH, the more you can potentially save.
Electronic payments also give you more control over the timing of your transactions. You can schedule payments in advance, ensuring that you never miss a due date and helping you maintain positive relationships with your suppliers while also maintaining cash where your business needs it.
Finally, ACH removes one of the inherent headaches of reconciling credit card transactions. Each line item provides clear and detailed information about each payment. This makes it simple to match payments to invoices and reduces the risk of errors or discrepancies in your accounting records.
Payment plans: negotiating favorable terms and discounts
One lesser known alternative to consider is negotiating payment plans with your suppliers or lenders. By proactively discussing your financial needs and preferences, you may be able to secure more favorable terms that benefit your practice in the long run.
For example, some suppliers may offer early payment discounts if you agree to settle invoices within a specific timeframe. These discounts can help you save money on your purchases while also improving your cash flow. Similarly, negotiating quarterly or bi-annual payment plans can help you spread out your expenses and better manage your budget.
Some suppliers may even offer credits for unused supplies or promotional discounts for bulk purchases. By taking advantage of these opportunities and maintaining open communication with your vendors, you can optimize your accounts payable process and reduce overall costs.
These are less possible to negotiate should you just leave their invoice on autopay.
Financing directly with suppliers
Depending on your situation, it could be worth considering the option of financing directly with your suppliers. This approach can streamline your accounts payable process by eliminating the need for intermediaries like credit card companies or third-party lenders.
When you finance directly with a supplier, it becomes much easier to track what items were received and what payments are associated with each purchase. This direct relationship simplifies the reconciliation process, as you have a clear line of sight between your orders and your financial transactions.
Moreover, financing directly with suppliers can help you build stronger, more transparent relationships with your vendors. By working together to establish mutually beneficial payment terms, you can foster a sense of partnership and collaboration that extends beyond transactions.
While alternative payment methods like ACH and supplier financing can help you avoid some of the pitfalls of relying on credit cards, they don't address the root of the problem.
The truth is, you likely turned to credit cards in the first place because your AP process was taking up too much time and you or your team was looking to automate it. While automating some or all of your procurement processes does take a bit of time, it can reap rewards far beyond that initial investment.
Following these steps can free up countless hours and mental energy that you can reinvest into growing your practice and delivering top-notch patient care
1) Understand the current state
The first step in revolutionizing your AP process is to understand where you’re starting from.
That means refining your existing AP process – or creating one from scratch if you don't have a standardized system in place. Part of this process involves clearly defining roles and responsibilities within your organization.
Unlike other tasks that can be split among team members, accounts payable management thrives on consistency and accountability. If you don’t already have a department or designated person handling AP, a major part of this step is to change that. Assigning dedicated staff to handle AP duties can go a long way toward improving your dental practice accounting.
If your existing staff can’t handle such a shift in workload, consider bringing in a new person or organization that can be focused on accounts payable activities only. Should you choose to build your AP function within your practice, these team members will also need the right tools to complete these duties but we’ll get into that in just a moment.
2) Map out your accounts payable processes
Once you have your team in place, it's time to take a hard look at your AP processes. Ask yourself questions like: What’s costing our team the most time? Where are the biggest opportunities to improve our cash management? What have we been missing?
This sort of analysis is where the real magic happens.
By establishing clear, consistent procedures for every step of the accounts payable journey, you can eliminate confusion, reduce errors, and pave the way for successful automation.
While we don't have the space to dive into the nitty-gritty details of AP best practices here, the key takeaway is this: effective AP functions are built on a foundation of standardized processes.
From PO generation to invoice approval and payment processing, every step should be carefully mapped out and optimized for efficiency. This is also the perfect opportunity to identify areas where your current process may be falling short.
Are invoices getting lost in the shuffle? Are approvals taking too long? Do you struggle with cash flow management?
By pinpointing these pain points, you can target your automation efforts where they'll have the greatest impact.
3) Choose a function to automate
The fastest, most effective route to having success in automating your AP function is starting small. It’s difficult but resist the temptation to dive into complex overhauling of your entire finance system before you've proven the value of automation on a smaller scale.
By focusing on a well-defined project, you can avoid getting bogged down in the intricacies of shaping a comprehensive platform without fully understanding its practical application.
For example, let's say you've identified accounts payable as a prime candidate for automation. Rather than attempting to overhaul your entire AP process from day one, start by automating invoice processing or payment approvals. With the ‘what’ figured out, it makes it that much easier to figure out the ‘how’ which is the technology you will use.
4) Adopt the right technology for the problem
With your people and processes identified and mapped out, the right software can take your AP management to the next level.
You should look for solutions that can seamlessly integrate with your existing systems, standardize your PO and invoice management, and offer robust reporting capabilities. The goal is to find tools that work together to create a cohesive, efficient AP ecosystem – not just add more complexity to your plate.
For instance, Method Pay is purpose-built for dental practices like yours, offering a user-friendly platform that automates every step of the accounts payable process. From digital invoice capture and 3-way matching to custom approval workflows and seamless ERP integrations, Method makes dental practice accounting a breeze.
Running a dental practice has so many moving parts. It's understandable that many practices have turned to credit cards as a quick fix for automating supplier payments.
Credit cards absolutely have their time and place and should be used correctly and responsibly. Strategically taking advantage of points or using them to extend cash flow are two such instances.
However, don’t let the short term benefits lead to a host of long-term problems that jeopardize the financial health and sustainability of your business.
Solely relying on credit cards for automating supplier payments exposes your practice to unnecessary risk, accounting headaches, and cash flow issues that may impact the sustainability of your business.
Take the time to clearly understand your current challenges. Identify the areas where automation can have the greatest impact and you can set your practice up for long-term success.
Ready to experience the power of AP automation for yourself?
Request a free demo of Method today and discover how our innovative AP solution can help you save time, reduce errors, and take control of your cash flow. With Method’s AP solution, you'll be able to focus on what really matters: providing exceptional patient care and growing your practice.
