Dental Practice Bookkeeping: Production vs. Collections

In dental practice bookkeeping, production is what you did and collections are what you got paid. Your practice management system reports production. Your books only count collections, because only collections are cash. The gap between the two is where write-downs, aging patient balances, and unbilled claims live, and unless the practice system is tied to the ledger every month, that gap is invisible until it’s large.

We run an accounting firm that handles books, payroll, and tax for practices, and the first thing we ask a new practice owner is which number they run the business on. It’s almost always production, because that’s the number on the screen at the front desk. It’s the wrong one.

What is the difference between production and collections in a dental practice?

Production is the full fee value of the work performed: every crown, every prophy, every filling at your fee schedule. Collections is what actually arrived in the bank after three things happened to it:

• Contractual write-downs. The insurer’s allowed amount is less than your fee, and the difference is gone the moment the claim is adjudicated. For a practice heavy in PPO plans, this alone can be a large share of production.
• Patient balances that age. Copays not collected at the chair, balances billed after insurance paid, statements that go out and don’t come back. Some of it arrives at 60 days. Some of it never does.
• Unbilled and denied claims. Work done, claim not submitted, or submitted and denied and never resubmitted. This is production that hasn’t even started becoming collections.

A practice producing strongly and collecting poorly looks busy and feels broke. The owner is working more hours, the schedule is full, and the bank balance doesn’t move. The books, done right, show exactly why.

What should dental practice financial reports include?

Beyond the standard P&L and balance sheet, four numbers every month. All four come from the close if the practice management system is tied to the ledger.

1. Collections as a percent of production, by payer. Overall, and split between fee-for-service, each major PPO, and any government plans. The overall number tells you whether the write-down problem is growing. The split tells you which plans are eating the margin, which is the input to the decision every practice eventually faces about dropping one.
2. Patient AR over 90 days. Not total AR; the old part. Balances past 90 days collect at a small fraction of face value. A growing over-90 balance is a front-desk process problem that shows up first in the books and last in the bank.
3. Hygiene production vs. doctor production. Hygiene is the recurring, schedule-driven, high-margin engine of a general practice. Doctor production is where the big cases are. If hygiene is slipping as a share of the whole, the recall system is leaking, and the doctor is working harder to make up for it.
4. Supplies and lab as a percent of collections. Combined, roughly 12% to 18% for a general practice, though the trend matters more than the number. A rising percentage with flat collections means either supply costs crept up, the lab is being used differently, or collections are falling behind production, and the report tells you which.

Tying the PMS to the ledger

The practice management system and the accounting system don’t talk to each other unless someone makes them. The close is where that happens.

Every month, the deposits in the bank get matched to the collections report from the practice system, by payer. Insurance EFTs, patient card payments, checks, and the merchant processor’s net deposits all have to add up to what the PMS says was collected. When they don’t, the difference is one of a short list of things: a deposit in transit, a merchant fee netted out, a refund, a posting error at the front desk. Finding it monthly takes twenty minutes. Finding it in March takes a week.

Production gets recorded in the books as a memo figure, not revenue, so the collections-to-production ratio can be reported from the same place as the P&L. The AR aging comes from the PMS, and it gets reviewed alongside the ledger, not instead of it, because the PMS doesn’t know about the bank.

Payroll in a practice

Practice payroll is more involved than most small businesses’. Associates are often paid on a percentage of their collections or production, which means the payroll calculation depends on the very tie-out described above being done first. Hygienists may be hourly with a production bonus. The front desk may have a collections incentive.

Every one of those formulas has to be applied from the correct number each pay period, and the payroll expense has to land in the books split the same way the production does, so hygiene labor sits against hygiene production and associate pay sits against associate collections. When payroll is run by a separate provider from a spreadsheet, and the books are kept by someone who never sees the formulas, the labor line on the P&L is one lump and none of the margin analysis is possible.

What a CFO does with this number

A fractional CFO reads the four numbers together and turns them into three decisions.

• Prices hygiene. Hygiene margin, once labor is split correctly, tells you whether the recall fee schedule and the hygienist’s compensation work together. Often the answer is a modest fee adjustment on the highest-volume codes, communicated to patients, not to insurers.
• Staffs to production. Front-desk and assistant headcount should track production per operatory, not the doctor’s stress level. The report shows when the practice grew into a hire or when it hired ahead of the work.
• Chases the right AR. Over-90 patient balances and denied claims are different problems with different fixes. One is a front-desk collection policy; the other is a billing process. The books show which one is costing more, and that’s where the effort goes.

Where we come in

We do practice books, payroll, and tax from one firm, so the PMS tie-out, the associate compensation calculation, and the labor split all happen in one close, by the same people, on the same schedule. The four numbers above come with the monthly reports, and our advisory tier turns them into the hygiene pricing, staffing, and AR decisions. If your practice is producing more than ever and the bank balance isn’t moving, reach out. We’ll tie your last month of collections to production and show you where the gap is.

Frequently asked questions

Production vs. collections?
Production is the value of work performed; collections are the cash actually received after write-downs and aging, and only collections hit the books.

What reports does a practice need monthly?
Collections as a percent of production by payer, patient AR over 90 days, hygiene vs. doctor production, and supplies and lab as a percent of collections.

What’s a normal supplies and lab percentage?
Roughly 12% to 18% of collections combined for a general practice; the trend matters more than the number.