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How to select the best revenue recognition policy for Packages

Clinicea has a the most comprehensive Revenue Recognition Policy for Packages.  It ensures no matter which country your Clinic Chain is in, and no matter what your business policy, any complexity you have with managing Packages will be easily supported in Clinicea, out of the box.

In this article we will share all of the 4 options you have in managing Packages and revenues from it. You can then select the Option that suits your Clinic best and share this information with your Clinicea Account Manager for configuration and setup. 

Regardless of the approach you select for your Clinic, the taxes (if applicable) you end up paying does not change, it remains exactly the same in all options. The multiple option are only there to support variations in business policies of Enterprise Clinic-Chains.

 

Let us review the options you have. In each case we will refer to the example outlined here:
Example: Patient buys package of 50,000/- of 10 sittings, where each sitting is for 5,000/- each. Patient pays 32,000/-, but takes only 2 sittings so far worth 10,000/-.

 

OPTION I:
Treat all Package Payments as an advance till the service/product is given to the Patient

From the Clinic’s Perspective,whenever a patient makes a payment towards a package, such an amount is treated as an advance. No Invoice is generated. The Clinic bills the patient for each service only when “a service is completed”. In the case of a product, the item is billed only when the product is “dispensed to the Patient”The concept is simple, all payments are a liability, till such time the Clinic actually renders the service to the patient. To the extent a service is given to the patient, the revenue is recognized.

From the Patient’s perspective, whenever they deposit some money towards a package, they get a Money Receipt. Whenever the get a service or a product, they get an Invoice. The invoice will automatically use any advance balance the Patient had.

From the Accounting perspective, Clinics may need to locally pay Taxes on sale of Services or Products. However in the case of a sale of a package, the payment received is held as an advance against the Patient ie payment received is a Current Liability on the Clinic’s balance sheet. Such a payment is not recognized as revenue just as yet. Only when the service or product is actually given to the patient, an invoice is generated for the completed portion of the package. Taxes become payable on the billed amount, as soon as an Invoice is generated.

From the Taxation Perspective, since a Clinic can only pay taxes on the invoiced amount, it lowers the initial taxation liability. Taxes are calculated each time invoicing is done, and not each time a payment is received.

Example: 

Bill will be for 10,000/- only. Billing happens only for the services rendered till date. Billing ignores the cost of the  package, or the amount of payment made.

Taxes payable by Clinic will be on 10,000/-.

Patient Advance is 22,000/- (32,000 was paid by the patient, but only 10,000/- worth of services given, so balance left over is 22,000/-) is held as an advance for the patient. As and when the patient comes to take other Services in the package; they get billed for the Service they have used and the advance is accordingly drawn down.

 

 

OPTION II:
Auto create Invoices by including only those items in the bill which can be fully paid off.


From the Clinic’s perspective,
this is also referred to as hands-free invoicing. You only need to enter how much the patient paid, based on which an Invoice is generated auto-adding items in the package that can be paid for. If the payment from the patient is sufficient to pay for 2 off the 6 items in the package, an auto invoice will be created including those 2 items only. Any residual payment that is not sufficient to pay for a single service is held as an advance temporarily, till such time that the next payment is made. When the patient makes another payment, past advances are combined and an invoice is generated again auto adding more items from the package. When you activate this feature you invoke super-smart algorithms that will auto create invoices, compute taxes, handle advances and, split payments across products and services in a combination package, in the correct ratio, all of it, on its own.

From the Patient’s perspective, whenever they make a payment, if the payment is sufficient to pay for a service or product in the package, they get a Invoice. If the payment is not enough to pay for any item or product, they get a Money Receipt, in this case the money paid is held as an advance.

From the Accounting perspective, Clinics may need to locally pay Taxes on sale of Services or Products. In this case the tax become payable immediately, as the invoice is drawn as soon as the payment is made. In the rare instance that the patient has paid so little that it is not sufficient to pay for any item in the package, only in that case the payment is treated as an advance ie Current Liability. In this case no Invoice is raised and hence no taxes are liable just as yet.

From the Taxation Perspective, since bills are getting generated automatically, taxes become payable immediately.  This leads to quicker revenue recognition and is the simpler of the two options as Billing is fully automated.

Example:
Bill will be for full 30,000/- as only 6 sittings can be fully paid if 5,000/- x 6 = 30,000/-. If we had tried to bill the 7th item, 35,000/- was required. So only 30,000/- is billed and balance kept as an advance.
Taxes payable by Clinic will be on the amount billed ie 30,000/-.
Patient Advance is 2,000/-

 

 

OPTION III:
Auto create Invoices such that taxes are paid of total payment received. In some countries such as India, Taxes need to be paid on on Receipts. Clinicea gives you the option to do so. You can check on a preference and have the system calculate taxes on the paid amount rather than the bill Amount.


From the Clinic’s perspective, a
Bill is generated for the whole package price.

From the Patient’s perspective, whenever they make a payment, it goes against the earlier generated Invoice. Taxes are calculated against the payment received.

From the Accounting perspective, Clinics can pay taxes (e.g. service tax) on payments received rather than on billing.

From the Taxation Perspective, Taxes become payable not on the bill but against the payment received for that bill.

Example:
Bill will be for full 50,000/-
Taxes payable by Clinic will be on the amount of payment received ie 32,000/-.
Patient Advance is 0/- instead the patient will have a due of 18,000/-

 

 

 

OPTION IV:
Auto create Invoices for the full Packages
From the Clinic’s perspective,
this is also referred to as hands-free invoicing. You only need to enter how much the patient paid, based on which an Invoice is generated auto-adding items in the package that can be paid for. If the payment from the patient is sufficient to pay for 2 off the 6 items in the package, an auto invoice will be created including those 2 items only. Any residual payment that is not sufficient to pay for a single service is held as an advance temporarily, till such time that the next payment is made. When the patient makes another payment, past advances are combined and an invoice is generated again auto adding more items from the package. When you activate this feature you invoke super-smart algorithms that will auto create invoices, compute taxes, handle advances and, split payments across products and services in a combination package, in the correct ratio, all of it, on its own.

From the Patient’s perspective, whenever they make a payment, if the payment is sufficient to pay for a service or product in the package, they get a Invoice. If the payment is not enough to pay for any item or product, they get a Money Receipt, in this case the money paid is held as an advance.

From the Accounting perspective, Clinics may need to locally pay Taxes on sale of Services or Products. In this case the tax become payable immediately, as the invoice is drawn as soon as the payment is made. In the rare instance that the patient has paid so little that it is not sufficient to pay for any item in the package, only in that case the payment is treated as an advance ie Current Liability. In this case no Invoice is raised and hence no taxes are liable just as yet.

From the Taxation Perspective, since bills are getting generated automatically, taxes become payable immediately.  This leads to quicker revenue recognition and is the simpler of the two options as Billing is fully automated.

Example:
Bill will be for full 50,000/-.
Taxes payable by Clinic will be on 50,000/-.
Patient Advance is 0/- instead the patient will have a due of 18,000/-