5 min read

What is your cash conversion cycle, and why should you care about it in your physical therapy practice?

We are all healthcare professionals who started a physical therapy business to help people improve their well-being and transform their quality of life. However, we did not establish a charity; we need to provide for our families and be suitably rewarded for the risks we've taken—starting a business, signing a lease, assuming the responsibilities of running a clinic, and becoming employers.

Calculating your cash conversion cycle is simple:

Cash in hand + accounts receivable - accounts payable = Your cash conversion cycle.

To determine how long it takes to receive payment after delivering a service and calculate your credit period for the cost of goods sold or service provision, let's assume a 30-day cycle for both Accounts Receivable (AR) and Accounts Payable (AP). For instance, if you have $40,000 in cash, $30,000 in AR, and $25,000 in AP, your cash conversion cycle is $5,000 every 30 days.

Maintaining a positive figure in this calculation is vital for our business. However, if our AR extends to 60 days while AP remains at 30 days, over 60 days, we find ourselves short by $20,000, even though we expect $30,000 in the next 30 days. Rectifying this imbalance will take approximately 5 months to regain control over our cash flow.

So, what can we do to improve this cash conversion cycle in your physical therapy clinic?

  1. The hardest of all: Do you have to change your business model?
  2. Do you need to ditch some insurance companies and move to cash?
  3. Do you need to invest more in marketing and wellness services?
  4. Can you collect patient contributions earlier or have customers pay in advance?
  5. Can you delay payment to suppliers?
  6. Can you invoice more frequently or earlier?
  7. Are we really on top of accounts receivable?
  8. Do we make sure we are paid on time?
  9. Can we increase the average price per session?
  10. Can we reduce our expenses or recurring charges?
  11. How quickly does marketing spend to convert a patient in the diary? Can this be shortened?
  12. Can we upsell our clients to another product or service and help serve them better, increasing their lifetime value?
  13. Can we request referrals and have more patients come in for less marketing spend?
  14. Can we refinance any debt to reduce the monthly payments?

So there you have it—14 ways to improve your cash conversion cycle and run a more efficient, profitable clinic.

If you're seeking additional methods to enhance efficiency within your clinic, consider switching to SPRY. Every clinic owner deserves access and visibility into their practice's operations, understanding their numbers, billing, and cash flow. That's where we come in to assist. Running reports and analyzing data can be time-consuming, yet it's crucial for growth. Sometimes, acknowledging the truth, even if challenging, can liberate you. Avoiding necessary steps for advancement won't serve you. It's time to confront the reality that your existing system may not meet your clinic's needs.

The good news is there's a better way, and help is available. All you need to do is book a demo!

Our comprehensive system is designed by physical therapists for business owners like you in the physical therapy field. Your business needs efficient systems and capable staff to grow and increase profitability. While we cannot provide physical therapists, we can assist you in enhancing your clinic's efficiency, improving cash flow, and expanding your practice. So, wouldn't it be worth just 30 minutes of your time to explore how SPRY can assist you?

Book a demo to discover more, or better yet, read this case study from Align Therapy.

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