If you are serious about Zero Accounts Receivable™, you will immediately start utilizing an outside source of financing and virtually eliminate financing your patients’ treatment yourself.  Several watch items exist that I want to cover with you now.  With all the problems lately regarding E-Z Pay, I want to warn you about what I saw as a problem with that system that kept our practice from becoming one of its victims.

The first item to consider that all but new Dentists are probably already aware of is the term “recourse.”  Any plan you sign up with should be Non-Recourse.  Non-Recourse means that if the patient doesn’t pay, the company cannot come back on you to ask for their funds back.  Some companies are “With Recourse,” and you want to stay away from these altogether.  Some companies have become wise to the question “Is your plan with or without recourse?” and have created a system with a “sliding scale” feature that, based upon the patient’s credit history, the plan for which they are approved may be with recourse.  This was the case with E-Z Pay.  A consultant that we used once was unfamiliar with this bait and switch technique that E-Z Pay used and highly recommended them because their fees were so low.  Upon doing my research, I found out that the majority of our patients, because we are in a rural area, are considered to be high risk and would only be approved for the plans that were with recourse.  This was the first reason I decided to not pursue the relationship.  Always do your own homework and ask point blank or read the fine print – I always do both!  Sometimes the sales reps don’t even know what recourse is, or what their company is actually doing within the boundaries of the fine print!

The second item I want to discuss is the fee you will pay.  As of January 1, 2006, CareCredit charges Dental Practices 5% of the processed amount on revolving payment plans, extended payment plans, and 3 months no interest accounts. They charge 6.9% on 6 months no interest plans, 9.9% on 12 months no interest, and a whopping 13.5% on their 18 month no interest plan.  What does all of this mean?

Let’s say a patient comes in and agrees to finance $1,000 using CareCredit.  He wants to pay it off over the next 12 months and chooses the 12 Month No Interest or “Same as Cash” plan.  CareCredit will pay the practice $1,000 minus 9.9% ($99) for a total of $901 on behalf of that patient.  You accept the $901 as payment in full and begin treatment immediately.

Some Dentists think this fee is high.  I am not going to argue with you because the phrase “too high” is too subjective to argue.  My point simply is this:  Would you prefer to have $901 or $0?  Because most of the time, if the patient doesn’t have the money now, he is not going to have it later.  If you try to finance it yourself to save the $99 you risk collecting none of it or only a small portion of the full amount.  If you try to charge interest and you do not have the patient sign a Truth-In-Lending statement, you are probably violating Truth in Lending laws depending upon where you practice and the laws in your state.  You also have the opportunity cost and administrative cost of collecting that money over one year’s time.  Save yourself the hassle and headache and outsource it.

The greatest advantage to using outside financing is that your practice will grow.  Patients will accept more treatment if they can make smaller payments over a longer period of time, but you don’t have to be bothered with the administration of it.  It’s a win-win-win.  You win, the patient wins, and the finance companies win.

The previous example I used was almost the highest withhold at 9.9%.  If the patient accepts a $5,000 treatment plan and finances it over 2 years, your withhold is only 5% or $250.  Again, would you rather have $4,750 or $0?  I know which I’d rather have.

The third item is to get the company’s history.  Find out where their money is coming from.  Why is this important?  In the case with E-Z Pay, they were self-funded, always moving money around.  (We know now.)  Care Credit is owned by GE Capital.   CitiHealth is owned by CitiBank.  Dental Fee Plan (DFP) became Capital One Healthcare Finance because Capital One bought it.  Most of our larger lenders are either in the business of healthcare financing already or are getting into it because there’s money in it – for them.  They know what they’re doing, the can take the risk.  The know how to risk, so let them do it.  You’re a dentist, not a banker, and not a lender.  With that said, stick with the big guys.  Don’t risk these fly-by-night firms that you can’t get any information on.  That was the final straw for me in deciding whether or not do deal with E-Z Pay – I couldn’t get much information about the company.  They seemed shady.  And as it turns out, they were.  (By the way, from what I understand they are now doing business as MyDDS.com – consider yourself warned.)

Someone always asks me, “Debra, what if we ran a credit check ourselves and only extended credit to people with good credit scores?  Wouldn’t that save us money?”  I thought of that too – it doesn’t work – for lots of reasons.  I could type out a list several pages long of reasons why people with good credit didn’t pay me but still paid all of their other bills.    Every time I made an exception and extended credit to someone I didn’t know, I regretted it for one reason or another. There is also the issue of administration.  You still have to get Truth-in-lending statements signed, send statements, follow up, make sure your practice management software is calculating interest and late fees properly, and pay someone to manage all of this.  Then if the patient doesn’t pay, you’re out even more money sending them to collections or taking them to court.  The bottom line is this:  It doesn’t work – don’t go there.  I can prove to you on paper that you are not saving money.

The only exception that works, is your returning patients who have been with you for more than 2 years and you are absolutely certain they will pay.  I’ve used the example before of my mother’s elementary school teacher.  Nicest lady in the world, honest and trustworthy.  She’s been in this community her entire life – over 70 years – and has been a patient since the doors opened 25 years ago.  There are still a few around like her, thankfully.  Other business people in the community who own their business and are known for paying their debts are always “good risks.”  The funny thing is, none of these people ever ask to pay in a way that is too imposing on our cash flow.  You know what I mean, asking to pay $10 a month on a $2,000 treatment plan.  They understand what the issues are and always offer up a plan to pay it off in 90 days or less.  Even my mother’s teacher who is on a fixed income paid me within 60 days.  I’ve learned as a result of this that if the patient seems to be wanting to take advantage of you, it’s a good sign that they are not worth the trouble.  Send them to an outside agency no matter who they are, unless you want to do their dentistry for free.

Once you’ve been in practice for a while, you will get a feel for who’s a good risk.  The amazing thing to me is the number of Dentists who “know” when a patient is not a good risk, yet do the treatment anyway.  I know it’s because you’re desperate for the work.  Just know when you do it that you are likely doing it pro bono.

The other perplexing issue for me is the Dentist who allows her staff to decide who gets credit (or free dentistry) – with no guidelines whatsoever.  (And sometimes the Dentist has established guidelines, but allows the staff to ignore them.)  When I took over the management of my husband’s practice, the woman previously in charge of his receivables took entirely too much risk and I inherited a huge accounts receivable balance.  Why did he allow her to let things get in so bad a shape?  He trusted her.  He did not have the time to manage everything himself and he believed she had his best interest at heart.  She might have; will we ever really know?  But without a strong desire to see the practice achieve success, we lose sight of what’s important in order to spare feelings and avoid confrontation.  That’s why it is vital to develop a system that works, put it in place, follow it to the letter, then let it work for you.

That’s also why I believe it is best, especially in a new practice, to treat everyone the same and make everyone go through an outside firm.  The practices that do this are hugely successful (profitable) with it and are never asked to extend credit.

At the time of this writing, our practice uses CareCredit exclusively.  However, I am not trying to sell you CareCredit and I do not work for them. (Actually, I do trainings for them but I am not in their sales department.) I advise all of my consulting clients to try as many firms in their area that they want to try and that are non-recourse.  Use local finance companies as available; you might get a great rate and they probably have established relationships with your patients already.  New Dentists should sign up with all plans that are non-recourse, test them and see which ones work the best in your area.  It just so happens that in our area, CareCredit works best for us.  Capital One might work best for you. We’ve used several over the years and by process of elimination have settled on CareCredit.

I’d love to hear from you.  Have you found a good way to determine a good risk from a bad one?  Is there a finance company you’re using that you love?

Posted under Dental Practice Management