How to Design the Financial Cycle of a Dental Clinic

Admin
May 13
2 min read

How to Design the Financial Cycle of Your Dental Clinic

Understand how to calculate the time between patient service and actual payment, optimizing your working capital and ensuring financial health for your clinic.

Introduction: The Importance of Cash Flow in the Dental Sector

Many dental clinics face financial difficulties even with fully booked schedules. This happens because the problem is not revenue generation, but the mismatch between invoicing and actual cash inflow. To address this, it is essential to understand and design the financial cycle, ensuring enough working capital to keep operations running smoothly.

Difference Between Operational Cycle and Financial Cycle

The operational cycle represents the time between starting patient care (including purchasing supplies) and completing the service.The financial cycle goes a step further: it considers the time between paying the costs of care and actually receiving the payment for that treatment.

Example: In an orthodontic treatment divided into 12 installments, the financial cycle may exceed 180 days if supplies are paid upfront but payments are collected monthly.

How to Calculate Your Clinic's Financial Cycle

The financial cycle can be calculated using the formula:

Financial Cycle = Average Collection Period – Average Payment Period

Average Collection Period (ACP)

Add up all amounts receivable, categorized by payment type (cash, card, insurance, installments).
Calculate the average number of days between service delivery and payment receipt.
Include insurance companies that pay in 30, 60, or even 90 days.

Average Payment Period (APP)

Calculate the average time your clinic has to pay suppliers, taxes, payroll, and rent.
If you pay everything upfront, your APP will be very short.

Practical example: If your ACP is 45 days and your APP is 15 days, your financial cycle will be 30 days.This means you must have enough working capital to sustain at least 30 days of operation without relying on new collections.

Factors That Increase the Financial Cycle

Long-term installment plans offered to patients
Insurance companies with payment delays over 30 days
Weak negotiating power with suppliers
Lack of control over patient delinquency

Strategies to Reduce the Financial Cycle

Offer discounts for upfront payments
Use receivables anticipation services with controlled fees
Renegotiate payment terms with key suppliers
Implement management systems with accounts receivable reporting

Practical Tip

For clinics that offer installment payments for treatments, using a Business Intelligence (BI) system integrated with financial management allows cash flow bottlenecks to be forecast up to 60 days in advance.

Conclusion

Understanding and calculating your dental clinic’s financial cycle is crucial to avoid unpleasant surprises in cash flow.More than just a metric, it is a strategic decision-making tool to determine how much working capital you need and when it's the right time to expand, hire, or invest.With proper planning, sustainable growth and strong financial health become achievable goals.