An analysis of the factors that influence the possibility of incurring bad debts in medical practices of sole practitioners

Abstract

The purpose of this study was to determine and analyse the factors that influence bad debts in medical practices of sole practitioners. The objective of the research was to establish a system of accounts receivable management which would lead to improved cash flows in such practices and ultimately influence a reduction in the cost of medical care. To be able to establish such a system in medical practices conducted by sole practitioners, it was necessary to study the procedures used in the granting of credit, determine the collection policies in existence and ascertain the financial training and experience of staff employed. The research data, collected by means of a questionnaire, found that accounts receivable management in such medical practices is not of an acceptable standard. Furthermore, the lack of trained staff leads to poor collection techniques and lengthy debt collection periods. These factors increase the demand for financing, which in turn leads to increased fixed costs in the form of interest payments on overdraft facilities. Consequently, this impacts negatively on the cash flow cycle of the practice. In order to improve and speed up collections from debtors, recommendations are made in respect of the method in which accounts receivable should be managed in such medical practices. These include, among others, the separation of debt collections from other functions within the practice, the use of electronic media to collect accounts receivable, as well as the introduction of a course in basic business management within the curriculum of the Bachelor of Medicine. It is envisaged that the proper management of accounts receivable would assist in reducing the cost of medical care to the consumer.