Since 1980, I have always encouraged our clients to offer a small discount for patients who choose to pay in full at the start of treatment, but to keep that discount as low as possible (given the state of the local economy) in order to protect profitability and keep cash flow consistent.  Recently a couple of other consultants have recommended discounts as high as 10% of the treatment fee in order to get “as many patients as possible to pay in full.”  I believe that following this advice in this economy would be an extremely poor choice.

There are three factors at play here.  One is the need for an orthodontic office to have more or less consistent cash flow from month to month throughout the year.  The second is to maintain a healthy workload for the administrative staff, and especially for your Financial Coordinator.  The third issue is to ensure the practice maintains a high level of profitability.

If a practice has too many (more than 20%) case starts paying in full it is, virtually always, because the practice is offering a discount for paying in full that is greater than necessary or appropriate given the local economy.  In the 80’s, when mortgages were at 15%, discounts needed to be as high as 10% and still it was tough to get more than about 12%-15% of starts to pay in full.  Only 10 years ago, in order to get 15% of starts to pay in full practices had to offer discounts of 7% or greater.  But that was then.  Today, consumer confidence is much lower than prior to 2008 and today most people want to avoid debt as much as is possible, so those who can afford to do so are motivated to pay in full.  Others who would not normally pay in full do so today because even a 2% or 3% discount offered for paying in full is better, a lot better in most cases, than the interest they are earning on their savings.  So, offering a 5% or greater discount for paying in full, when a 3% discount will do the job just as well is simply giving up profit.

Also, if an excessive number (more than 20% of starts) of patients pay in full, the number of accounts on the books declines and the accounts receivable decline.  While most Financial Coordinators really like that, it is actually not healthy for the practice cash flow.  In such a situation, the practice depends heavily on patients paying in full and on other patients’ down payments for that month’s cash flow and, because there are fewer accounts on the books making monthly payments, they depend much less on those monthly payments for the cash flow.  That sounds fine to most until the practice has a bad production month and cash flow crashes simply because there are fewer case starts to pay in full and fewer down payments as well.

As in all things “balance” is the key.  A practice with 10%-20% of starts paying in full, with an average down payment of 15% +/- of the average case fee and with an average payment plan of 85%-90% of diagnosed treatment time will have perfect Accounts Receivable and, assuming they keep patient and insurance delinquency under control, will have nice consistent month to month cash flow throughout the year with none of the wild peaks and crashes of cash flow that come in practices with low receivables and low account totals caused by excessive payments in full.

Some doctors believe that because their “competitors” are offering 5% and greater pay in full discounts that they necessarily need to offer the same.  What if those doctors offered 30% discounts to Wounded Veterans, or 50% discounts to families of clergy?  Good causes certainly but how necessary is it that you match what your competitors are doing?  The answer is, not at all!

Most of our clients, more than 90%, are offering either a 3% or a 2% discount for paying in full at the start of treatment.  In this economy, and with savings interest rates where they are at, offering paid in full discounts greater than that are unnecessary.

The Zuelke Automated Credit Coach (ZACC)

ZACC is a computer algorithm – a program – that evaluates patient/responsible party information contained in a Patient History document and assigns a “Zuelke” credit grade based on the maturity and stability of the person rated. ZACC then obtains an actual credit report and “reads” every line, every column, and every word contained in that report and makes a final “Zuelke” credit grade. It took years to develop this product and months to test it with hundreds of real world patients. It works and it is accurate!

To learn more, visit www.getzacc.com.