Since February of 1980, when I started consulting with Orthodontic practices, I have taught our clients to identify risk. I knew way back then, from 10 years’ experience in banking, that most people were mature, stable, and had the integrity to keep their financial agreements. However, I also knew that there was a small percentage of customers, of patients/parents, who did not have those traits, most especially the integrity part, and I knew that when a business, any business, but in this case the business of orthodontics, enters into an inappropriate financial relationship with that low percentage category of patients, those patients cause a greatly disproportionate degree of damage to the well-being of the practice. It is important to note though that the damage I am speaking of has little to do with the reduced revenue resulting from such patients/parents becoming delinquent and has everything to do with the damage to the fundamental well-being of the practice caused by that delinquency. I am speaking of the failed appointments, the instances of poor clinical cooperation, the number of POH entries in your clinical record, the fact that delinquent patients cause a significant percentage of emergency visits and the fact that the vast majority of malpractice suits come from delinquent patients…and they do not refer!
Those of you who have read these newsletters for years have heard all that before, but I wanted to use this communication to introduce a new aspect or a new reason why identifying risk and granting credit proportional to risk benefits the orthodontic practice.
For the most recent 2½ months, most orthodontic practices have been closed down and as I write this few are back to a 100% full schedule. My first comment about that is: “Don’t worry! Practices that were healthy, productive, and profitable in March when the shutdown occurred will be back to normal well before the end of this year. My main purpose though in this newsletter is to discuss the results of a comprehensive study of patient delinquency that I conducted once we received all the statistics from our clients for April 30 and again when we received the stats for May 31.
We are in the 7th recession since 1980. During that time the rate of unemployment reached highs of 11% in 1982, 10% in the financial mess of 2008-2009, and reached 14.7% as recently as April 2020. It is interesting though that in each of these weak financial periods, the rate of delinquency in our clients’ practices did not increase for more than a single month.
As of April 30th, when most people who had lost their jobs had been out of work for about a month, or a bit more, the 30 day+ (accounts delinquent 30 or more days) delinquency in our average clients’ practice increased from 2.6% of open accounts (15 accounts) to 4.5% of open accounts (24 accounts).
Remember that we believe that the number of patient accounts past due is a great deal more important than the number of dollars past due. Delinquent dollars do not no-show. Delinquent patients do! However, for those few doctors who still insist on the foolish exercise of looking at and placing a value on the dollars delinquent, our average clients’ dollars 30+ days delinquent increased from $4,800 and .004 (4/10’s of 1%) of total accounts receivable to $10,004 and 1% of accounts receivable.
To make sense of these numbers understand that the average practice as of the end of February was producing $192,000 per month and had a total accounts receivable of $1,158,000 with 516 open accounts. In other words, the increase in delinquency, whether you look at patients delinquent or dollars delinquent was entirely insignificant.
But that was as of the end of April. By the end of May, most orthodontists had gone back to work. Most of our clients had the administrative staff back to work well before the office actually opened to see patients. The Treatment Coordinators were working their recall and their pending calls and getting new and PH II starts into the schedule and Financial Coordinators were writing their letters and making their phone calls, identifying their delinquent patients, working out problems, and ensuring their past due patients maintained a quality relationship with the practice. That obviously worked because as of the end of May, while production and income were still not up to last years’ numbers, delinquent accounts had already been cut back down to below 3% of open accounts and delinquent dollars had been cut by half.
So what’s the point of all of this? It’s not that our average client is great, or quite successful, or smart, etc., even though they are all of those things. The point is that identifying risk and granting credit appropriate to that risk builds a practice that is bulletproof! Our clients have the reputation in their communities of being liberal and flexible with their patients and making their orthodontic fees affordable (“A” patients which make up 75%+ of entire patient flow can have $0 down and long term payment plans if needed by the patient) while at the same time our clients have taught their weaker patients that they must keep their financial agreement with the practice if they expect to remain with the practice. The fact that the average doctor is producing and collecting $2.3M a year tells us that this management style and philosophy is working. The fact that delinquency, even during a period with 14% unemployment, is so low as to be insignificant tells us that identifying risk and granting credit proportional to that risk, builds a quality practice and does not restrict productivity or profitability.
I am a few short months away from “real” retirement (I have been “sort of” retired for the past 5 years) and when I close Zuelke & Associates for good there is, unfortunately, no one in the profession ready to take my place. (Please do not believe the Practice Management consultants who would like you to believe they can handle all aspects of the orthodontic practice, including the issue of credit and collections. They cannot!)
This is my last newsletter but I have a legacy, of sorts, with the 2000+ Financial Coordinators we have sat kneecap to kneecap with and trained and with the 1100+ orthodontist clients I have had the great pleasure (mostly) of working with directly. While I may be leaving the profession, the ZACC credit risk identification program administered by OrthoBanc will still be available for use. With ZACC, every orthodontic practice can identify a patient’s credit risk and see a recommended financial arrangement in 30-45 seconds, with no impact on your patient’s credit score. ZACC has proved to be an invaluable tool for each of our clients, along with many other orthodontists throughout the country. Go to www.getzacc.com and you can see for yourself how simple, fast, and inexpensive it is to identify risk and to grant credit proportional to that risk. You will not be disappointed.
