Cash Flow Management

According to a study from Equifax, approximately 600,000 new businesses are launched each year in the United States. Of that, 66 percent survive two years, 44 percent survive four years, and only 31 percent survive for at least seven years. 81 percent of these companies could not survive due to inefficient cash flow management. Cash flow management is the process of monitoring, analyzing, and optimizing the gap between cash receipt and expense. Firms that don’t exercise good cash management may not be able to make the investments needed to compete, or they may have to pay more to borrow money to function. At ClearCycle, with our over 3 decades of financial management, product, and solution experience, we help our customers in managing healthy and efficient cash flow management.

This client case study with our cash flow management solution utilizing provider discount levels in payment scheduling is an example of our 

top-notch service in cash flow management solution. ClearCycle provides a range of business, technical, and operational services to assist in clients’ decision making for initial and ongoing configuration options of various aspects of our systems. The following graphic displays results of an analysis of using relative levels of discounts provided by healthcare providers in scheduling the rapidity of paying claims to the individual providers.
To support the analysis, ClearCycle used its proprietary claims payment timing simulation model and a sample of all claims processed and paid for a three-month period by the client under its then current operations.

Metrics for the analysis

  • Annualized total claims payments for the client were $1.5 billion (an average daily claims cash disbursement requirement of $4.1 million).
  • An analysis of the difference between the date of payment and the date the claim was received for processing for each claim in the three-month sample revealed that the average claim was paid (on a dollar-weighted basis) in just over 9.7 days from the date of receipt.
  • The average annual value of cash flow improvements in the company at that time was estimated to be approximately 6%. This resulted from a combination of additional investment opportunity and reduced operating cost borrowings.

    Analysis Summary

  • All providers were analyzed and segmented into one of four groups ranging from:
    o Group #1 who provided primarily clean, electronically submitted claims with significantly higher than average discounts, to
    o Group #4 who provided primarily paper-based claims with no discount (“non-par providers”).
  • Policy groups and payment cycles were established in the simulation model to predict what would have happened to these same claims had the payment timing module of the ClearCycle system been used with policies which rewarded each provider’s payment scheduling based on the discounts offered.
    o The goal for providers in Group #1 was to create payments to these providers each day and to pay each claim immediately upon adjudication.
    o The goal for providers in Group #4 was to create payments to these providers once per week and to pay within a maximum of 17 days for each claim received electronically and within a maximum of 24 days for each paper-based claim. These parameters fit easily within all prompt pay regulations and expectations.
    o Providers in Groups #2 and #3 policies were established between these extremes.
  •  The sample claims were then analyzed to determine when each claim would have been paid with the ClearCycle cash flow tools using the new policies/parameters.
    o We found that the average claim would have been paid (on a dollar-weighted basis) in slightly under 12.5 days after receipt of claim.
  • This resulted in a net gain in the average cash flow factor of nearly 2.7 days and would have resulted in an additional average daily positive cash flow of approximately $11 million.

    Analysis Results

  • Within a short period of time, based on the 6% value that they were placing on short and long-term cash flow, we would expect an earnings benefit of over $660 thousand.
  • While significantly reducing payment receipt times for the most important provider segment, those providing large discounts and electronic submission of claims and having insignificant increase in the cost of making daily payments to this segment.

 

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