Why Your Medical Practice Needs a Good Banker

September 3, 2014

There are a variety of financial products of particular relevance to medical practices. Make sure to get the guidance you need to use them wisely.

A good commercial banker can be a great asset to a medical practice, and not just for real estate and startup loans. There are a variety of financial products of particular relevance to medical practices. These products carry widely different costs, and the costs often depend upon the set of products you use. That's why you need to have a relationship with a banker who will identify the best combination for your wants and needs. Here are seven financial service products that every medical practice needs to have and utilize:

1. Checking account. A primary checking account (operating account) is a necessary part of operating a business for paying expenses and accepting payments.

A secondary checking account for payroll is less common but can be useful. When a payroll is prepared, the money to cover it is transferred from the operating checking account to the payroll checking account. The primary advantage is security. Payroll checks are more often counterfeited than operating checks, because they go to individuals rather than business entities. Since the balance in these accounts is close to zero, except for the few days around a payroll, exposure is limited.

2. Money market account or savings account. Both of these allow for a limited number of withdrawals each month, so neither is appropriate for an operating account. Their function is to be a place to park money that you may need in the short or mid term.

Unlike a commercial checking account, both of these types of accounts bear interest. In normal times the interest earned can be worth the trouble of maintaining the additional account. In these low-interest times, the benefit is security: The very low level of activity makes any fraudulent activity stand out and you can block electronic (ACH) transactions in these accounts while allowing them in your transaction account.

3. Line of credit. A line of credit is not free, but an appropriately sized line is not expensive either. The bank will charge a fee based upon the upper limit of the line of credit. That's why it is important to avoid what is known as a "vanity line," which is bigger than you'll ever need. Other than the annual fee, the only cost is interest on the outstanding balance.

The purpose of a line of credit is to make sure you will have ready access to cash when you need it, and to cover any mismatches in cash flow. A line is always advisable. It is essential when the practice is seasonal or is embarking on a potentially disruptive initiative such as installing an EHR or converting to ICD-10.

4. Credit card. A credit card for the practice is essential. It facilitates online purchasing, gives you as much as a one-month float on expenditures, and can eliminate the need for petty cash. Different physicians and employees can have different limits on the same credit card account. Even better, cardholders can be limited to specific types of vendor. For instance, the receptionist may be able to charge $50 for lunch, but cannot spend $12 for a movie ticket.

To my mind, the biggest advantage is the documentation - detailed and automatic. And lost receipts can be obtained from the bank, if necessary. In addition, the credit card activity can be set up to feed directly into your online banking and accounting software.

5. Merchant services. These allow the practice to accept credit and debit card payments, a necessary service in today's environment.   An additional benefit of accepting cards is the ability to collect the funds in, essentially, real time. If the practice follows the rules, the burden of collecting the funds - in almost all cases - falls to the card vendor.

It used to be that debit card transactions (where the cardholder supplies a PIN) were much less expensive for the practice than a credit card transaction (where the cardholder signs a receipt.) Legislation has significantly closed that gap.

6. Paper check capture. The infrastructure is in place, and has been for a number of years, to deposit checks to your operating account from your desk. Some banks will give you the check-scanning equipment; others will sell or rent it to you. The primary benefit is that no one has to go to the bank, except to deposit cash. Another benefit is that the checks are deposited sooner, which usually means that fewer of them become uncollectable.

7. Internet or online banking. Online banking lets you do any transaction from you desk that you can perform with a teller. Many, if not most, are also available on your smart phone. Each morning you can see exactly where all of the accounts stand, and easily move money around and pay bills. Different users can have different permissions for the same account. Online banking is a huge improvement over monthly paper statements, although it shouldn't completely replace them.