Beaverlog Tips: Volume 10 - April 8, 2003

Prepayments and Overpayments

This issue of Beaverlog Tips discusses prepayments and overpayments. Beyond displaying a different colored icon for prepayments and overpayments on a patient's transaction list, The THERAPIST does not distinguish between the two. For the purpose of this article, we will refer to both as prepayments.

You create prepayments whenever you receive more money from a payer than that payer owes. Most often this will be a patient or responsible party payer but can be an insurance payer if the situation dictates. For those familiar with the old DOS version of The THERAPIST, it permitted paying more to a service than the total owed. The THERAPIST for Windows is more rigorous in its accounting and does not permit this kind of overpayment on a service.

When applying a payment to one or more services, sometimes there is money left over once the payment has been applied correctly to all services. This left over money can then be applied to a prepayment. The prepayment then stays on the system until you apply it to some future service. If your practice distinguishes between prepayments that will be applied in the future and overpayments which must be refunded, The THERAPIST allows you to make that distinction and lists them with a different color.

This difference between prepayments and overpayments leads naturally to how prepayments are treated in an accounting context.

When someone pays you money for which a service has not been rendered, this money technically still belongs to the payer, not to you. It is not income at that point. Rather, this prepayment or overpayment is a liability. This is just a fancy word in accounting that means that it is like a debt you owe to someone, in this case to the payer. You can relieve this debt in one of two ways. The first is to give them back the money. In The THERAPIST, that is done by entering a refund adjustment on a prepayment.

The second way to relieve the liability is to render the service and apply the overpayment to that service. Only then does that money truly become income. To apply a prepayment to a service is a simple process in The THERAPIST. On the patient's transaction list, highlight the prepayment. Notice that with the prepayment highlighted, the Apply Prepayment button on the right becomes available. Click on this button and select one or more services to which to apply the prepayment. If money is still left after applying to available services, click the Apply to Prepayment button to save the remainder as a prepayment. The process of applying the prepayment to a service is identical to how a new payment is applied.