06 August 2014
Top Tips for managing the impacts of reform: Debtor Management
The change in accommodation funding sources and the annual caps on resident care fees will impact the debtor profiles for providers. Debtors are predicted to increase, and the gap between those who proactively manage their debtor profile and those who don’t will widen considerably...
1 July 2014 has brought with it reforms which will allow accommodation payments to be made by refundable lump sum amounts (termed Refundable Accommodation Deposits or RADs), rent-style payments (called Daily Accommodation Payments or DAPs) or a combination of the two. The anticipated shift toward periodic accommodation payments compels a ‘cash-flow’ oriented business focus. This payment preference exposes debtor management issues.
The following tips will assist you to reduce the impact of debtor management risks on your organisation.
Understand your balance sheet data and its relevance to debtor management
Understanding the implications and interactions of balance sheet figures, such as the average debt-to-equity ratio (total liabilities including resident liabilities divided by total net assets) and average debtor days gives your organisation more standardised analysis than just raw financial data. These ratios allow your aged care facility to be judged on its performance, as opposed to its size. Analysing trends in these ratios also assists in revealing financial weaknesses and opportunities for guidance in performance and planning.
Keep accurate records
Keep clear documentation and have a good filing system in place. Invoices and payments should be entered as soon as they are issued or received. This will further aid in ensuring accurate figures for your balance sheet and profit and loss requirements.
Consider your finance options
Look into engaging an organisation with financial and accounting expertise, with systems and resources to help improve your cash flow. Not only is managing your cash flow important to ensure your business is viable and sustainable, this knowledge will mean you can confidently demonstrate your capability to banks and other stakeholders.
Improve credit control by following up overdue accounts
Regularly communicate with consumers, confirming invoices are received on time and there are no outstanding queries. Open communication lines are critical to ensuring residents understand all terms, conditions and payment methods.
Update security arrangements such as liens and personal guarantees (from both residents and their families)
Providers should check and update legal implications associated with resident’s assets, such as property. This is often linked to lump sum accommodation payments, the capital perspective of the LLLB reforms.