In long term care, it is essential for any financial team to implement long term care software with financial features. Part of this process involves distinguishing between accounts receivable vs payable, as this helps administrators understand the overall financial situation of the facility.
Accounts receivable is the money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for. An accounts receivable is considered an asset on a company’s balance sheet because it represents future cash inflows that the company expects to receive.
Some benefits of having accounts receivable documentation and software include:
- Facilitating the tracking and managing of cash flow, like salaries and reimbursement
- Enabling easier tracking of customer credit and collection of money owed for services delivered by nursing homes
- Building loyalty, as residents and their family members can obtain services using IOUs, credit accounts, and other long term payment options.
Accounts payable, meanwhile, is what the facility owes to its suppliers for goods or services that have been received but not yet paid for (e.g., medications). Accounts payable records are considered a liability on a facility’s balance sheet because they represent future cash outflows that the facility expects to make.
When exploring accounts receivable vs payable in a facility, a financial manager should also consider the accounts payable process, which Nanonets defines as the management and execution of a business’ short-term payment obligations to vendors and external suppliers. Facilities will generally assess documents associated with an accounts payable process, such as purchase orders, receiving reports, and vendor invoices.
A simple workflow that nursing homes and other long term care providers can use for their account payable process is:
- Receive the bill/invoice from the vendor
- Verify the invoice with their own financial records via their LTC software
- Update their accounts payable records
- Make payments before or on the due date
- Close the ledger account for the transaction
Accounts Receivable: Asset or Liability?
One may feel compelled to ask, “Accounts receivable: asset or liability?” Previously, while discussing the difference between accounts receivable vs payable, we briefly mentioned that accounts receivable is considered an asset. To better understand this, we must first distinguish between an asset and a liability.
An asset is anything of value that a company owns, which can be used to generate revenue or reduce expenses. For long term care providers, their facility, staff, and equipment are all examples of assets.
Meanwhile, a liability is something that a company owes, either to another business or an individual. Money owed to suppliers for goods or services received (like EHR software services) would be considered a liability, as would any money received by way of a loan.
As mentioned before, accounts receivable is any outstanding amount owed to a company (here: the facility) by its customers for goods or services delivered or used but not yet paid for. Because accounts receivable represents future cash inflows that a long term care facility expects to receive, it is considered an asset on a company’s balance sheet.
In short, accounts receivable is considered an asset because it is money that the long term care facility is expecting to receive in the future. This money can then be used to reduce expenses or generate revenue.
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Best Practices for Bookkeeping Accounts Payable and Receivable
We will now dive into the best practices for bookkeeping accounts payable and receivable for a facility in the long term care industry. But before that, let’s define bookkeeping. In regards to the accounts receivable vs payable in a facility, bookkeeping is the recording of financial transactions. This includes all the money coming in (accounts receivable) and going out (accounts payable) of your long term care facility.
Here is another commonly asked finance-related question: is accounts receivable an asset? As stated above, an accounts receivable is money owed to a facility by its customers. Therefore, when a facility is asking accounts receivable, asset, or liability, it will quickly determine that accounts receivable is considered an asset. Just to be clear, in long term care, accounts receivable examples include insurance claims by skilled nursing facilities to healthcare insurers for services provided to residents.
Having discussed the differences in important accounting features, we can now look at the best bookkeeping practices for accounts receivable:
- Provide price estimates or quotes: In long term care, it is always best practice to provide price estimates or quotes to your residents or their families before any goods or services are provided. This will help them stay within their budget and avoid any surprises when the bill comes. It is vital the facility informs residents and their families of the nursing home’s pricing structure and what services require additional payments.
- Review accounts receivables regularly: Facilities need to regularly review and update their accounts payable records to stay on top of what bills are due and when.
- Offer a variety of payment methods: This could include online payments, credit card payments, or even checks by mail. Giving the residents or their families different options will make it easier for them to pay their bills and avoid any late fees.
- Input customer payments immediately: As soon as a facility receives a payment from a resident’s insurer, be sure to input the data into the long term care software system right away. This will help facilities accurately track who has paid and what service payments are still outstanding.
- Forecast recurring revenue: In long term care, there is always some degree of recurring revenue from both residents and insurance companies. Facilities can use this to their advantage by forecasting how much money they will receive each month, thus allowing them to budget for expenses better.
Meanwhile, typical financial best practices for accounts payable include:
- Prioritizing invoices according to the due dates: This ensures that long term care facilities are always one step ahead of their outstanding bills and thus can avoid any late fees.
- Reviewing reports and KPIs: In long term care, it is essential to review reports and KPIs on a regular basis so nursing homes can stay financially on track. This information helps to identify areas of improvement and track care progress throughout the facility.
- Checking for duplicate payments regularly: With so many invoices and payments going in and out of a long term care facility, it is important to check for duplicate payments on a regular basis. This will avoid any over-spending, over-paying, and unnecessary expenditures.
- Keeping track of invoice disputes and resolutions: From time to time, payors may dispute invoices. It is important to track these disputes and resolutions in order to avoid any future issues. The CMS offers an independent dispute resolution webpage to help resolve any payment disputes between providers and health plans.
- Reconciling all accounts daily: In long term care, it is best practice to reconcile all accounting into one centralized record daily. This ensures that all payments are accounted for and that there are no discrepancies.
Importance of Automation in Accounts Receivable vs Payable
When it comes to creating accurate financial records in the context of accounts receivable vs payable, one thing worth remembering is the value of automation software. While it may seem like a daunting task to set up at first, the long term benefits are abundantly clear. Automation can help save time and money while also improving accuracy and efficiency.
Long term care administrators should seek out nursing home software vendors with built-in systems that come equipped with a comprehensive set of financial tools that can meet their needs. It is also important for the nursing home financial staff to be involved in the process to analyze the needs of accounts receivable vs payable and determine whether the nursing home management software meets their requirements.
Finally, staff training in the software is also necessary. If staff cannot effectively use the automation software tools, their workflow processes will be less efficient than they were prior to software implementation.