What is a key metric your dental practice should track closely in 2025? According to Ashley Bond, co-founder and chief billing officer of Wisdom, the collection percentage is one of the most important metrics for evaluating the financial performance of a dental practice, as it reflects how effectively a practice is collecting payment for services rendered, which directly impacts its cash flow and profitability.
Ashley Bond.
"A high collection percentage, ideally above 98%, signals that a practice is efficiently managing its revenue cycle," Bond said. "However, if this percentage falls below this threshold, it raises a red flag that warrants further investigation."
How to calculate your collection percentage
According to Bond, to calculate your collection percentage, you will compare your collections to your net production. Net production refers to the gross production (total billed charges) after all adjustments, including insurance write-offs and patient discounts.
Here's the formula for calculating the collection percentage:
- Take your total collections for the past three months (or, ideally, the last 12 months).
- Divide that number by your total net production for the same period.
- Multiply the result by 100 to get the collection percentage.
For example, if your practice collected $90,000 in the last three months and your net production was $100,000, your collection percentage would be 90% (90,000 ÷ 100,000 = 0.90, or 90%).
What is a good collection percentage?
Bond believes that, ideally, your collection percentage should be 98% or higher.
"If your collection percentage falls below this, it doesn't necessarily mean there's a critical issue, but it does serve as a signal that something might be off," Bond said. "It's the starting point for deeper analysis."
Bond added that a collection percentage under 98% indicates that the practice is not collecting as much as it should be based on the production, which could be due to a variety of factors. While not every practice will hit 98% every time, she believes aiming for this goal can greatly improve your financial stability.
Red flags and areas to investigate
Bond said that when a collection percentage is lower than 98%, there are several areas you should examine to identify the underlying causes.
Here are the four she encourages all practices to watch carefully:
- Adjustments: One of the first places to check is adjustments. High adjustments, such as insurance write-offs, can significantly impact your practice's collection percentage. Look at whether your practice is using in-network fees or full fees when posting charges. If you're using full fees but are contracted with insurance companies at lower rates, this could result in higher adjustments, reducing your collection percentage.
- Insurance payments and write-offs: If your adjustments are high even with in-network fees, it's essential to review your insurance claims. Are you writing off claims that could potentially be paid by the insurance companies? Are there issues with claim processing that might be leading to higher-than-expected write-offs?
- Patient discounts: Sometimes, practices offer discounts to patients, either as part of promotions or as a way to encourage payments. While offering discounts can be a good strategy, it can also lower your collection percentage if the discounts are not properly accounted for or if they are too frequent.
- Fee schedule issues: Another common issue could be the fee schedule attached to your ledger. Are the fees accurate? If there's a mismatch between the fees in the ledger and what's actually being billed, it can affect both your collections and your collection percentage.
So what does it all mean?
A collection percentage of 98% or higher is a strong indicator of a healthy revenue cycle. However, when the percentage dips below this benchmark, it's important to analyze your adjustments, fee schedules, and insurance claims carefully. By identifying and addressing the root causes, you can improve your collection percentage and ensure the long-term financial health of your practice. Obtain your free revenue health report, in which Wisdom will analyze your collection percentage and other revenue metrics.
Ashley Bond is the co-founder and chief dental billing officer at Wisdom, a dental billing company. She previously founded Bond Dental Billing. Bond has a background deeply rooted in the dental industry. She worked alongside her father in his dental practice. Bond is passionate about helping dental practices thrive through innovative solutions and effective dental billing strategies.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
