Receivables Before Radiographs
Riverbend Animal Hospital is a three-doctor general practice with gross revenue of $2.6 million and a 9.25% line of credit with $60,000 of $150,000 drawn. At the quarterly review, the practice manager finds accounts receivable of $285,000, or roughly 39 days outstanding; 38% of that balance is more than 90 days old. The front desk collects deposits for surgery only, has no written financial policy, and informally allows six long-standing clients to be billed later. The owner wants to hire a fourth associate at $105,000 base plus 22% production and buy an $85,000 digital radiography unit before Q3. Revenue per veterinarian is about $867,000. The manager believes collections must be fixed first but fears that delaying the hire will hurt growth and staff morale.
1. Quantify the cash currently tied up in receivables and recommend three specific collection actions, noting which parts of the balance are unlikely to be recovered.
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Daily revenue is $2.6M / 365 = $7,123. At $285,000, receivables represent about 40 days of revenue. The over-90 bucket is 0.38 x $285,000 = $108,300. Even if only 65% of that older bucket is collectible, about $70,400 is at risk of becoming bad debt. Reducing days outstanding from 40 to 25 would release roughly 15 x $7,123 = $106,800 of cash, though that assumes collection rates hold. Actions: (1) replace informal bill-me arrangements with a signed financial policy: payment at time of service, deposits for all procedures over an agreed threshold, and written installment plans with card on file; (2) run a focused 90-day aging campaign with owner-assigned calls for balances over $1,000 and automated reminders for smaller ones; (3) stop charging without a documented estimate and consent, and review high-balance accounts weekly. Do not treat the full $108,300 as recoverable; older balances and contested charges will need write-off decisions.
2. Evaluate whether the practice should hire the associate, buy the radiography unit, or do both, and show the financial logic the manager should present.
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First clarify the contract structure. If $105,000 is a base plus 22% of all production, total compensation at the current average of $867,000 would be about $295,700, or 34% of that veterinarian's revenue before support staff, drugs, and space. If 22% is a bonus above a production threshold, the calculation is very different. The manager should model three scenarios: a ramped associate producing 50%, 70%, and 90% of the $867,000 average over 18 months, with direct costs at the practice's normal ratio. Next, sequence the radiography unit against cash: $85,000 plus installation is one-time, but financing it while drawing the line of credit at 9.25% creates an ongoing cost. A defensible recommendation is to spend the next 60-90 days tightening receivables, then use released cash and a written production contract to fund the hire, and lease or finance imaging only after the associate's ramp is visible. If the owner insists on both, set a trigger: hire only if days outstanding fall below 30 and the line of credit stays under $100,000.
3. How should the manager present the recommendation to an owner who sees delay as losing momentum?
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Frame the recommendation as protecting growth, not postponing it. Open with the shared goal: adding a fourth veterinarian without creating a cash crisis. Use three slides or one page: current cash cycle, the 60-90 day collection plan with owners and dates, and a hiring trigger tied to receivables and line-of-credit balance. Acknowledge the morale risk of delay and offer a parallel step that does not consume cash, such as opening a search, drafting the contract, and interviewing now with a start date after the trigger is met. Give the owner a decision point rather than a veto: 'If we hit 30 days by June 15, we extend the offer.' Document the decision. This preserves the owner's sense of momentum, makes the tradeoff explicit, and prevents the practice from financing a new doctor's ramp with high-interest debt.