How long schemes, insurers and patients take to pay
How a practice measures how long medical schemes, HMOs, insurers, employers and patients each take to pay, and notices early when one group slows down.
By Achekam · · 5 min read · For Healthcare businesses in South Africa, Nigeria, Kenya
A medical or dental practice is paid by several very different payers. In South Africa it is mostly medical schemes, with patients paying co-payments and shortfalls. In Nigeria, health maintenance organisations and corporate retainers carry much of the load. In Kenya, private insurers and employer schemes sit alongside patients who pay themselves. Each group pays on its own timetable, and each has its own reasons for paying late.
Most practices look at one number: total debtors. When it rises, they know something is wrong, but not what. Measuring how long each group of payers takes to settle its accounts tells you where the problem is, often months before it shows up as a cash shortage.
Days sales outstanding, in plain terms
Investopedia defines days sales outstanding (DSO) as the average number of days a company takes to collect payment after a credit sale. It gives the formula as accounts receivable divided by total credit sales for the period, multiplied by the number of days in the period. Investopedia's page on DSO explains the measure, its limits and how to read changes in it.
For a practice, "credit sales" are the accounts you bill and wait to be paid for: claims to a scheme, HMO or insurer, invoices to an employer, and patient accounts that are not settled at the desk.
Investopedia stresses that the calculation includes only credit sales, because including cash sales would lower the DSO. Consultations paid by card or cash on the day are not part of it. Leave them out, or the figure will look better than your collections really are.
Work it out for each group of payers
The useful version of DSO for a practice is not one figure but several. Split your payers into groups that behave alike, for example:
| Group | Typical payers |
|---|---|
| Schemes or HMOs | Medical schemes in South Africa, HMOs in Nigeria |
| Insurers | Private health insurers |
| Employers | Companies with staff health accounts or retainers |
| Patients | Co-payments, shortfalls and private patients billed on account |
Then, for each group and for the same period:
- Add up what that group owed you at the end of the period.
- Add up what you billed that group on credit during the period.
- Divide the first by the second and multiply by the number of days in the period.
A worked example in words. At the end of the quarter, the practice adds up the balances owed by all the medical schemes it bills and the claims it submitted to them during the quarter. Dividing the balances by the claims and multiplying by the days in the quarter gives the schemes' DSO. It does the same for patient accounts. The schemes' figure is steady from last quarter; the patients' figure has climbed. The practice now knows to look at patient billing, not at scheme claims.
Watch the trend, not one number
Investopedia advises tracking DSO trends over time rather than relying on a single period, and comparing DSO only with businesses in the same industry with similar business models. It notes that seasonal businesses may see DSO vary regularly from month to month.
Practices have their own seasons. Scheme benefits run out late in the year for some patients, so more of the bill falls on them. January brings school fees and holiday debts that compete with medical accounts. Compare each group with the same month last year as well as with last month, and plot the figures over a year or more. A single high month may be nothing; several rising months in a row are a signal.
Comparing your practice with a hospital group or a pharmacy chain tells you little. Compare like with like, or simply with yourself.
What a rising figure is telling you
Investopedia warns that a rising DSO can mean customer satisfaction is falling, that longer payment terms are being offered, or that customers with poor credit are buying on credit. Translated into a practice:
- Schemes, HMOs or insurers slowing down often points to claims being rejected or queried, missing authorisations, coding errors or a payer changing its processes. Look at rejected and resubmitted claims first.
- Employers slowing down may mean the contact who approved your invoices has left, or that the company itself is under pressure.
- Patients slowing down may mean the practice has become more relaxed about payment at the desk, or that more patients are carrying balances they cannot afford.
Each cause needs a different fix, which is why the split by group matters.
Taking the figures from Achekam
In Achekam, receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals. If each scheme, insurer and employer is set up as its own customer, the balances at month end for each group can be added up from the ageing.
The credit sales come from the management accounts, which show an income statement for a chosen period beside the period before and a balance sheet at period end, built from the practice's own journals and exportable as PDF or CSV. If your income accounts separate scheme or insurer income from private patient income, the income statement gives you each group's billing for the period directly. If they do not, discuss with your accountant whether to split them, because it makes this measure far easier.
When payments come in, Achekam records them against one invoice or spread across a customer's invoices. A part payment leaves an invoice part-paid, which is common when a scheme pays less than the account, and any extra is held on the customer's account. Keeping allocations accurate is what makes the ageing, and therefore your DSO, trustworthy.
Following up the slowest group
Once you know which group is slowing, target the follow-up there rather than sending the same reminder to everyone.
For patients, a clear statement helps. Achekam's server produces a customer statement of account as a PDF that can be e-mailed, and the screen shows whether it was sent. For schemes, HMOs and insurers, the follow-up is usually a review of rejected or short-paid claims, with someone named to resubmit them. For employers, a call to the person who approves invoices is often quicker than another e-mail.
Make it a monthly habit
Work out DSO for each payer group at every month end, and keep the figures in one table you can read over a year. For balances patients owe after their scheme has paid, see medical aid shortfall balances, and for the statements themselves, patient account statements.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
