Back at the start of 2018, Bankrate published an interesting financial security index survey. In the report, they found that over the course of the year, 34% of American households experienced a major unexpected expense.
What was more surprising though was only 39% of respondents reported they had enough in their savings to cover a $1000 expense. That’s means 6 out of every 10 families could be facing financial hardships if a loved one passes away unexpectedly.
When this happens, using money from an insurance policy to cover funeral costs or other expenses seems like a good idea. As you know though, waiting for an insurance claim to be paid out could mean your firm is left floating the bill and waiting to get paid. Sometimes that means waiting up to 30, 60, or even 90 days.
But did you know, that waiting for money is likely costing you money?
Unfortunately, this is something many funeral homes experience regularly. In the same study by Bankrate, they found that more than a third of respondents reported that not having $1000 in savings would force them into another form of debt and possibly harm their credit score or financial security.
As your accounts receivable grows higher with each service you float, you’re actually costing your business by doing so. Back in 2009, the Harvard Business Review published an article outlining how accounts receivable hurts your business. Although the article is dated, the model still holds true today.
What they found was that accounts receivable really only add one thing to your business: costs.
But what are those costs exactly? According to the Harvard Business Review, there are seven elements: time, administrative, opportunity, predictability, financing, bad debt, and morale.
While each of these costs adds up, let’s take a look at the top five.
Time is money, plain and simple. The cost of time can be calculated using a valuation method called discounted cash flow (DCF). The reason this costs you money is that the longer it takes for you to receive a payment, the more time you’ve lost not being able to earn more off that money.
The basic idea behind is that a dollar today will be worth more tomorrow. The longer it takes for you to collect that money means lost time that it could be accruing interest or reinvested elsewhere.
Another major cost of accounts receivables is lost opportunities. If you’re left waiting to get paid, you don’t have that money available to reinvest or grow your business. That’s money you could be using to invest in training for your staff or using the funds to repair and maintain your facilities.
Again, it all comes back to time. The longer it takes for you to receive a payment, several opportunities could pass you by. Maybe one of your suppliers has a great promotion you want to take advantage of. If your firm doesn’t have that cash to spend now, you might have to pass that opportunity up or look for other ways to pay which could end up costing you more.
The longer you spend waiting to get paid, the more time you’ll have to spend following up with the family. Between phone calls, follow-up letters and collection processes, administrative costs can add up quickly. Waiting to get paid for a service means your employees need to spend additional time following up with the family or working with a collection agency. These added tasks can take away from other day-to-day responsibilities and lead to overtime costs or a decrease in productivity. These are all added costs that can hurt your business as they pile up.
Bad debt is another cost that directly relates to the cost of accounts receivable. As the receivable ages, the more unlikely it becomes that the family will repay the full amount or even anything for that matter. By choosing to float the costs until the family can pay you, your funeral home is at risk of losing money on the service.
To be successful, a business needs to have access to funds for business expenses and overhead. While it’s nice to let a family wait to pay, it doesn’t stop your monthly expenses from coming in. If you have a smaller firm and have cash tied up in accounts receivable, you might have to finance or borrow money to cover costs. If that’s the case, the new debt you’ve taken on can grow with interest and make the income of the service you arranged for the family less.
With FuneralPay’s new partnership with Tribute Insurance Assignments, we’ve made it easier for your firm to get paid now!
Our insurance assignment solution for funeral homes helps avoid these added costs. We can even advance the funds directly to your firm in as little as 24 hours. Our team works with insurance providers across the country and can help expedite the process.
Upon receiving the insurance assignment request, the Tribute Insurance Assignments team will get to work verifying the policy. They will also act as a liaison between the family and the insurance company. Once the policy is verified and we’ve received a signed irrevocable assignment, funds can be advanced to your firm.
Best of all, this service is offered at no expense to the funeral home and has no out of pocket expenses for families using the program.
To learn more about insurance assignments through FuneralPay, click here.
If you want to schedule a demo or get started setting up your account, contact us today!
Tommy holds a Communications degree from Laurentian University and an Integrated Marketing Communications Graduate Certificate from St. Lawrence College. He is a Content Marketing Specialist at FrontRunner and focuses on producing engaging content that funeral homes can use to connect with families. In addition, Tommy crafts SEO content for clients and specializes in helping the general public connect with the death care industry as a whole.