What is the importance of accounts payable and receivable in a medical office?
Accounting is vital to every business, regardless of its nature. In fact, proper accounting and management are the heart and soul of a successful business! Since each company is set up for the purpose of providing an income for its owner and employees, it stands to reason that it needs to have accurate records of the money coming in and going out. There needs to be complete records of the following: What is being spent or earned?; Where is the money being spent or earned?; When is it being spent or earned?; Why is the money being spent or earned?; Is the company making a profit or a loss? These and many more questions can be answered if the information has been kept judiciously through the means of Accounts Receivable, Accounts Payable, Payroll, Job Costing, Inventory, Balance Sheets, and Income Statements.
I majored in and received a degree in Business Management/Accounting in college, and I can truly testify that no other single department of a company is more important than its Accounting Department!
Accounts payable refer to money that a company owes for good and services, while accounts receivable are the amounts a company can collect from consumers for goods and services. It is particularly important to collect money from patients in a timely manner in a medical office because many of the payments come from insurance companies, which take a while to pay. Medical offices tend to bill patients each month, meaning that it takes a long time for patients to pay. In general, it is more difficult and costly to collect payment from bills that are older. In addition, the complexity of patients' health insurance plans and the changing nature of health insurance mean that patients will be responsible for a greater chunk of their health care spending (as they have higher deductibles). As a result, medical offices need to collect patients' payments as soon after their visit as possible because medical offices have accounts payable, including payroll, office rent, and malpractice insurance costs. Medical offices need the timely payment of accounts payable to have the necessary cash flow to continue to conduct their business.
There is no reason to believe that accounts payable and receivable are any more or less important in a medical office then they are in any other business activity. These two terms refer to two two consolidated business accounts applicable to most of businesses. Accounts payable represents the total outstanding amount of payment that the business is required to make against the product and services it has purchased, and accounts receivables represents the outstanding amount of payment the the business has to receive against goods and services that it has sold to its customers. These two amounts affect the immediate cash flow position of the business, as well as the total funds employed in the business. The accounts receivable is also important because it has substantial impact on the amount of possible bad debts.