The 4 Phases Where Dental Revenue Goes Missing
Money does not just disappear. It leaks at specific, predictable points in your revenue cycle. Find the leaks and you find the lost revenue.
The Revenue Journey
Every dollar your dental practice earns travels through a journey from the moment it is owed to the moment it is verified in your accounts. Along this journey, there are four distinct phases where revenue can go missing.
Understanding these phases helps you identify where your practice is vulnerable. Most practices have strong controls in some phases and weak controls in others. The weak points are where money disappears.
This framework, Received, Recorded, Deposited, Reconciled, gives you a systematic way to evaluate your revenue cycle and find the gaps.
Phase 1: Received
The first phase is simply receiving the money. Before you can record, deposit, or reconcile anything, you have to actually collect payment.
Where Revenue Leaks in Phase 1
Treatment completed but never billed. Services provided but claims never submitted. This is especially common with:
- Secondary insurance not billed after primary pays
- Patient portions not collected at checkout
- Insurance claims delayed and eventually forgotten
Eligible payments not collected. Money you could collect but do not:
- Patients leaving without paying their portion
- Not verifying insurance before appointments
- Failing to collect on past-due balances when patients return
Insurance denials accepted without question. Claims denied that could be recovered:
- Denials that should be appealed
- Claims that need correction and resubmission
- Coordination of benefits issues not resolved
How to Find Phase 1 Leaks
Measure collection rate. Calculate net collection rate (collections divided by production minus contractual adjustments). Healthy practices collect 96-98%. Below 94% indicates Phase 1 problems.
Review denial rates. Track claim denials and their outcomes. High denial rates without corresponding appeals suggest revenue left on the table.
Audit patient balances at checkout. Sample whether patients are being asked to pay and whether they actually pay before leaving.
Check secondary billing. Review claims where primary insurance paid. Was secondary billed when applicable?
Fixing Phase 1 Leaks
- Implement pre-appointment insurance verification
- Enforce payment collection at checkout
- Create a denial management workflow
- Track and bill secondary insurance consistently
- Follow up on aged patient balances
Phase 2: Recorded
Once money is received, it must be recorded in your practice management system. This is where the financial record is created.
Where Revenue Leaks in Phase 2
Payments received but not posted. The money came in but was never entered in the PMS:
- Insurance EFTs received without posting the ERA
- Patient payments collected but not entered
- Checks deposited but not recorded
Payments posted incorrectly. The payment was recorded but inaccurately:
- Posted to wrong patient
- Posted to wrong date of service
- Posted for wrong amount
- Posted to wrong payment type
Payments posted then reversed inappropriately. Records manipulated after the fact:
- Legitimate payments reversed without cause
- Fraudulent adjustments zeroing out paid accounts
- Refunds processed for payments that should remain
How to Find Phase 2 Leaks
Compare bank deposits to PMS postings. Total bank deposits should equal total payments posted in the PMS (with adjustments for timing). Variances indicate Phase 2 problems.
Look for unposted insurance payments. Check your clearinghouse for ERAs received. Compare to insurance payments posted. Missing postings are Phase 2 leaks.
Audit payment posting accuracy. Sample posted payments and verify they match source documents (EOBs, receipts, etc.).
Review reversal and adjustment activity. Look for unusual patterns in payment reversals or adjustments that zero out balances.
Fixing Phase 2 Leaks
- Establish same-day posting requirements
- Match every insurance EFT to an ERA before end of day
- Require dual verification for payment postings
- Implement approval requirements for reversals
- Create audit trail review procedures
Phase 3: Deposited
Money that has been received and recorded must actually make it to the bank. This physical movement of funds is another vulnerability point.
Where Revenue Leaks in Phase 3
Cash and checks diverted before deposit. Physical theft of funds:
- Cash skimmed from payments
- Checks diverted to personal accounts
- Deposit amounts reduced from what was collected
Deposit timing issues. Money held rather than deposited:
- Cash drawer accumulating for days
- Checks sitting in desk drawers
- Delayed deposits creating confusion and opportunity
Deposit errors. Mistakes in the deposit process:
- Checks lost or misplaced
- Deposit slips prepared incorrectly
- Wrong amounts deposited
How to Find Phase 3 Leaks
Compare PMS deposits to bank deposits. What the PMS says was deposited should match what the bank received. Discrepancies indicate Phase 3 problems.
Verify deposit timing. Check that deposits are made daily. Delays create risk.
Match credit card batches to merchant deposits. Credit card payments processed should equal deposits received (minus fees).
Review cash handling. Audit cash procedures, drawer counts, and deposit preparation.
Fixing Phase 3 Leaks
- Require same-day deposits
- Separate deposit preparation from deposit verification
- Implement dual custody for cash handling
- Verify bank deposits against PMS daily
- Use remote check deposit with images for documentation
Phase 4: Reconciled
The final phase is reconciliation, verifying that everything matches. Without reconciliation, leaks in the first three phases go undetected.
Where Revenue Leaks in Phase 4
No reconciliation performed. The most common failure:
- Bank accounts never reconciled
- PMS and bank statements never compared
- Unidentified deposits never investigated
Reconciliation performed incorrectly. Reconciliation that misses problems:
- Totals compared without transaction-level matching
- Variances accepted without investigation
- Reconciliation performed by people who control funds
Reconciliation manipulated. Deliberate falsification:
- Records adjusted to force a match
- Discrepancies hidden rather than resolved
- Fraudulent entries to cover theft
How to Find Phase 4 Leaks
Review reconciliation procedures. Is reconciliation being done? By whom? How often? With what documentation?
Test reconciliation accuracy. Independently verify that recent reconciliations were accurate.
Check for unidentified deposits. Growing unidentified deposit balances indicate reconciliation failure.
Look for forced balancing. Adjustments made specifically to make reconciliation work, without legitimate explanation.
Fixing Phase 4 Leaks
- Implement daily bank-to-PMS reconciliation
- Separate reconciliation from payment handling
- Require investigation and documentation of all variances
- Use automated reconciliation for independence
- Review reconciliation results at management level
Mapping Your Vulnerabilities
Use this framework to assess your practice:
Phase 1: Received
- Collection rate over 96%
- Denial management process active
- Patient payments collected at checkout
- Secondary insurance billed consistently
Phase 2: Recorded
- Same-day payment posting
- All insurance EFTs matched to ERAs
- Posting accuracy verified
- Reversals and adjustments controlled
Phase 3: Deposited
- Same-day deposits
- Cash handling controls in place
- Credit card batches reconciled
- Deposit amounts verified
Phase 4: Reconciled
- Daily reconciliation performed
- Independent reconciliation (not by payment handlers)
- Variances investigated and documented
- Unidentified deposits resolved timely
Check each box honestly. Unchecked boxes indicate where your revenue is at risk.
The Compounding Problem
Revenue leaks compound across phases. A problem in Phase 1 creates issues in Phase 2. Problems undetected in Phase 4 allow all other problems to persist.
Example cascade:
- Phase 1: Insurance claim denied, not appealed. $500 lost.
- Phase 2: Patient payment collected but not posted. $200 goes untracked.
- Phase 3: Cash from payment skimmed before deposit. $50 stolen.
- Phase 4: No reconciliation to catch any of it. All losses become permanent.
Each phase offers a chance to catch problems. When controls exist at every phase, leaks are caught and fixed. When controls are weak, losses accumulate invisibly.
Building a Complete Revenue Protection System
Strong practices have controls at every phase:
Phase 1 Controls: Verification, collection policies, denial management, follow-up procedures.
Phase 2 Controls: Same-day posting, dual verification, audit trails, adjustment controls.
Phase 3 Controls: Same-day deposits, segregation of duties, deposit verification, cash controls.
Phase 4 Controls: Daily reconciliation, independent verification, variance investigation, automated matching.
The goal is not perfection at any single phase. It is adequate protection at every phase, so that a failure at one point is caught at the next.
The Cost of Incomplete Protection
Practices with weak controls at any phase leak revenue continuously. A 2% leak on $1 million in production is $20,000 per year, every year.
Most practices have strong controls at some phases and weak controls at others. The weak phases are where money disappears.
Mapping your vulnerabilities using this framework helps you prioritize improvements. Fix the weakest phase first. Then address the next weakest. Build systematic protection across the entire revenue journey.
Protecting revenue at every phase requires visibility across your entire cycle. Zeldent monitors Phase 4 automatically—reconciling your bank deposits to your PMS daily and flagging issues that indicate leaks in Phases 1, 2, and 3. Whether you are a practice owner, bookkeeper, or DSO finance team, automated reconciliation is the foundation of complete revenue protection. Schedule a demo to see the full picture.
