Ep. 104: Patient Financing – The Do’s & Don’ts
No matter where you practice, you probably have some form of patient financing in your office. But there are a few keys to utilizing it properly and some ways to do it that aren’t so effective. In this weeks episode Jeff goes over not only when you should use it, but how doing it wrong could be costing you a lot more than you think!
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Questions From This Episode
Why is it a mistake to make patient financing the very first payment option offered to a patient?
It can cost the practice a lot in merchant fees, sometimes 15 percent or more on a large treatment plan, and it puts the practice at real risk if the patient gets disapproved, since rejection tends to leave someone feeling discouraged rather than motivated to find another way to pay. Both problems are avoided by finding out first how the patient would normally want to pay.
How should the doctor actually open the financial conversation instead of jumping straight to financing options?
State the cost directly, then ask the patient how they'd normally take care of something like this. If the conversation drifts too quickly toward cost without the patient showing real interest in the treatment itself, that's usually a sign they're not actually sold on the treatment yet, and the conversation should go back to why they need it before returning to how they'll pay for it.
Why does it matter whether a practice offers more than one financing company, and is there such a thing as too many?
Different companies approve based on different credit criteria, so having a couple of options avoids unnecessary disapprovals and covers patients across a range of financial situations. Too many options, though, tends to create confusion among staff about which company to actually use for a given patient.
Why is it risky to enter the full treatment plan amount into practice management software when a finance company is actually taking a cut?
If a $10,000 case only nets the practice $8,500 after a 15 percent finance company fee, but the software shows the full $10,000 as collected, an associate paid a percentage of production ends up overpaid relative to what the practice actually received, and staff bonus plans tied to collections can end up paying out on money the practice never actually got.
What real example did Jeff give of a practice accidentally paying staff bonuses on money it never received?
A client had roughly $50,000 in finance company merchant fees written off in a single month, but since those cases were entered at their full treatment value rather than the net amount actually collected, the staff believed the practice had hit its bonus threshold and were paid a bonus on that same $50,000 the practice never actually took in.
Episode Transcript
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No matter where you practice, there's a good chance you're already using some form of patient financing, a company a patient can apply to that extends them credit, pays your practice directly, and then collects the money from the patient over time to pay off that debt. There are plenty of these companies in the United States, several in Canada, and similar options in other countries as well. At first glance, patient financing looks like a genuine win for everyone involved. It helps you collect more, potentially helps your profitability, and most importantly, it gives patients access to treatment they might not otherwise be able to afford.
But like anything else, patient financing is simply a tool, and a tool can be used well or used poorly. I could have a hammer and a nail, or I could smash my thumb with that same hammer. Used well, it's genuinely a win-win. But what happens when it isn't used well? It can cost your practice real profitability, and at worst, it can actually lower your treatment acceptance. So for this week's episode, I want to walk through four ways to make patient financing actually work well in your practice. My name is Jeff Blumberg, and I'm your host.
A couple of things up front. I'm genuinely a fan of patient financing companies, we work with a couple of them through our MGE buying group, which offers benefits to our clients, and the people I've worked with at these companies are great and do offer real value to your patients. I have nothing against them, and I think they're a vital tool to have available in your practice. I just think there's a right way to use them, and a way that's considerably less effective.
So, the first way to use patient financing effectively: don't make it your patient's first payment option. Here's how I've typically seen this go wrong. A doctor or treatment coordinator presents a treatment plan, and the moment the cost comes up, the patient is immediately steered toward financing as the only option mentioned. Say I need a $10,000 treatment plan, and the moment your treatment coordinator tells me the cost, they immediately follow with, but we have several payment plans you can use through the companies we work with. There's no real discussion first, no how would you like to pay for this, Jeff, it's simply offered up instantly.
I think that's a mistake for a couple of reasons, and I'll get into how I'd actually handle that conversation instead. First, patient financing plans, and this varies enormously by company, can genuinely cost your practice a lot of money. There are cases where a $10,000 treatment plan costs you 15 percent or more, meaning you're only actually collecting $8,400 while the finance company keeps the remaining $1,600. That's especially true with no-interest options. Some companies charge more, some less, and it often depends on the length of the repayment window, a longer payment period sometimes costs more, sometimes less, but either way, it can add up to a significant expense.
If financing is your only way of collecting on larger balances, that's going to look great in terms of how much you're producing, but it comes with a real 15 percent cost. Look at your overhead, the only line items typically costing you that much are probably payroll, you're likely not spending anywhere near 15 percent on marketing or lab fees. So if a large share of your collections is coming through these companies, that's a genuinely significant expense. If financing is truly the only way a given patient can pay, fine, that's better than not offering it at all, but if it's the only option you're presenting to every patient regardless, that's the mistake.
The second problem is what happens if the application gets disapproved. Play this out for a second, you've probably experienced some version of it already. You present me a $10,000 treatment plan, hand me off to fill out a credit application for a one or two year interest-free plan, and it comes back disapproved. Now you or your treatment coordinator have to sit back down with me and ask what other ways I could pay. Keep in mind, getting disapproved feels genuinely discouraging, I feel rejected. I'm not going to be especially solution-oriented in that moment, I'm more likely to say I need to go home and look at my finances, or talk to my spouse. Being disapproved isn't exactly motivating, and it definitely doesn't keep me excited about moving forward with treatment I was just turned down for financially.
On top of that, different companies use different approval criteria, and you have no real visibility into how any of them actually make that decision. You've probably seen a patient you were sure would get approved get turned down, and the reverse too, someone you assumed had no shot getting approved instantly. You're not running the credit or risk department for any of these companies, so you're always taking a real gamble if financing is the very first and only option you present.
So how would I actually handle this financial conversation instead? It's fairly simple. Ideally, the doctor is the one having at least part of this discussion, I've said before that at minimum, the doctor needs to personally tell the patient what the treatment plan costs. Jeff, your treatment plan comes to $10,000, and I'm going to have you sit down with Susie here to go over the different payment options available. That's the irreducible minimum. Ideally though, the doctor takes it a step further: Jeff, here's your treatment plan, it comes to $10,000. I might react with, wow, that's a lot of money, or something along those lines. At that point, you'd ask, how would you normally take care of something like this?
What might I say? Maybe I mention I could put it on a credit card, or maybe I say I genuinely don't know, I wasn't expecting this today. If the conversation starts drifting too heavily into the money and away from any real interest in the treatment itself, that's usually a sign I'm not actually sold on the treatment plan yet. In that case, the better move is asking directly whether I actually want to move forward with the treatment, and if there's real hesitation there, drop the financial conversation entirely and go back to why the treatment matters. Talking about cost at that point is a waste of both your time and mine if I'm not even sold on doing it.
Assuming I do want the treatment, you'll typically see me start becoming more solution-oriented on my own. I might say something like, I guess I could put it on a credit card, though I'd rather not given the interest rate, or ask whether I could pay half now and half next month. In other words, I start actively participating in solving this. That's the core reason for approaching it this way, if you immediately hand me five different financing options right off the bat, I'm not being given any real role in solving my own problem. And this is genuinely my problem, my treatment, my mouth, so I should be participating in figuring out how to handle it.
There's a second reason too: if I do eventually opt for financing and it doesn't work out, you've already got a fallback in place. Walk it forward, you've presented the plan, I hesitated, we went back into the treatment discussion and worked through my actual questions, and now I genuinely want to move forward. I start asking about options myself, could I put half down now and half in a month, could I put it on a card, do you offer any kind of prepayment discount? Sure, Jeff, if you pay by card today, you save an additional 5 percent. That might be enough on its own to get me to prepay the full amount right there instead of splitting it across two months.
Or maybe I simply don't have another way to pay, in which case I'll ask about a payment plan. If you're smart about it, you'd ask a follow-up question there too, how long would you need to pay this off, or how much could you realistically pay each month? If I say I could pay $1,000 a month, that puts me on roughly a one year plan. It's worth thinking this through carefully, since the longer the repayment horizon on some of these plans, the more it tends to cost the practice.
So say I've decided I could prepay, or split it across a card, but then I mention I'd really rather not use a credit card and ask about a payment plan instead. At that point, absolutely, go ahead and apply for patient financing. Now picture this playing out: I go apply, even though I technically have the $10,000 available on my card, and I get disapproved. I'm not going to be thrilled about that, but you've already established a fallback, we simply move forward with the credit card option we discussed earlier. You're not left with nothing, since financing wasn't the only solution on the table to begin with.
So to summarize: the doctor presents the treatment plan and states the cost, that's the minimum. Ideally, the doctor goes a step further and asks how the patient would normally handle something like this, since patients are most likely to actually listen to the doctor, or the treatment coordinator if the doctor genuinely can't. If the patient hedges on the money, that's usually a signal to circle back to why they need the treatment in the first place before returning to payment. Once they're genuinely on board, they'll typically start offering up their own solutions, a credit card, a check, a payment plan.
In a lot of practices, you'll find patients frequently just put it on a card, write a check, or use a debit card once given the chance to actually participate in the decision. That's genuinely good news, since you're not paying 10 to 15 percent to a finance company on that $10,000, you're paying something closer to 2 or 3 percent in a standard credit card processing fee. That's a meaningful difference over time, since your actual costs, the assistant's time, the lab bill, the chair time, don't change at all based on how the patient pays. On a $10,000 case, that's the difference between collecting roughly $9,700 with a card versus $8,500 after a 15 percent finance company fee.
So if financing is genuinely the only option available to a patient, that's fine, use it. But if there are other ways for them to pay, that's usually what you want to guide toward first. Think about what this looks like at scale: if half your collections come from patient copays and you're averaging a 15 percent cost on financed balances, that works out to roughly 7.5 percent of your gross collections, comparable to your entire monthly supply budget. That's a significant expense. If instead only about a quarter of your patient copays end up financed this way, the cost to the practice is considerably smaller. So that's the first tip, and it's not about avoiding financing entirely, it's about not making it the default first offer, and using it as a genuine backup when a patient can't pay another way.
The second tip: have multiple financing options available. Before a patient actually applies, it's worth your treatment coordinator asking a bit about their general credit situation, do they know roughly what their credit score is? If they say something like 620, you'd likely steer them toward a company more likely to approve that range. If they say 750, you might use a different company altogether, possibly with better interest terms. This should be part of the conversation before anyone actually applies, since it helps avoid unnecessary disapprovals and gives you real flexibility.
It's genuinely interesting how inconsistent this can be across companies. I've had one client tell me a particular company isn't approving anybody right now, and then heard from a completely different client that same week that the exact same company is approving nearly everyone. I don't know the specific underwriting criteria these companies use, and I'm certainly not part of their risk departments, but it's worth having a couple of different options so you're not stuck with just one, and so you can reasonably serve patients across a range of financial situations. That said, you don't want too many either, more than a couple tends to create genuine confusion among staff about which company to actually use for a given patient.
The third tip, and I honestly didn't realize this was still a common issue until talking with a few of our Power Program client managers, is making sure all the paperwork actually gets completed before the patient leaves the office that day. We still see this in some newer client practices: a patient agrees to finance a $10,000 case through a specific company, and instead of completing the application on the spot, they're simply handed a link by email or text to apply once they get home. That leaves the entire process completely outside your control, and predictably, it often just never happens. All of the paperwork and the actual application should be completed in the practice before the patient leaves, every time.
The fourth and final tip has to do with the business side of your practice specifically, your finances and accounting. Say you're doing that same $10,000 case through a patient financing company, and you're paying a 15 percent merchant fee, with the patient getting two years interest-free. You're actually receiving $8,500, while the patient technically owes the finance company the full $10,000. I've found there's genuinely no industry standard for how practices record this in their practice management software, whether it's Dentrix, Eaglesoft, Open Dental, or something else. Some offices enter the full $10,000, since that's the value of the treatment being delivered. Others enter $8,500 with a corresponding $1,500 adjustment. I'm not saying one approach is inherently right or wrong, that's genuinely a conversation worth having with your own accountant, but I do want to flag some of the real liabilities that can come from getting this wrong.
If you enter the full $10,000 as received, but the practice actually only received $8,500, that creates real problems in a couple of areas. Say you have an associate performing that treatment, paid 30 percent of production. If you're calculating that 30 percent off the full $10,000, you're effectively paying them 30 percent of money the practice never actually collected, which works out to roughly 35 percent of what you actually received. That's a real cost creeping into your overhead if it isn't accounted for, whether through a standard surcharge built into associate compensation for financed cases, or a financial coordinator who's diligently tracking and writing off the actual finance company fee from each specific case before calculating pay.
Beyond the associate issue, if you're using separate financial software, QuickBooks or similar, and that $1,500 difference isn't being properly recorded as an adjustment or expense somewhere, your books will simply show that you collected the full $10,000. When that data gets exported or entered, it looks like you collected more than you actually did, and you can end up paying taxes on money you never actually received. So you need a clear, deliberate way to account for that gap, whether that means entering it as $10,000 minus a $1,500 merchant fee expense, or handling it some other consistent way that your accountant is comfortable with.
There's a third issue too, tied to staff bonus or incentive plans. If you're entering these cases at their full value rather than what you actually collected, and a meaningful share of your revenue comes through finance companies, this can become a genuinely serious problem. I talked with a client whose total finance company write-offs for a single month came out to roughly $50,000. Since those cases had all been entered at full value instead of net collections, the entire team believed the practice had hit its bonus threshold for the month, and staff ended up being paid a bonus on $50,000 the practice never actually received.
So when it comes to associate pay and staff bonuses, collections need to reflect what the practice genuinely received in real dollars, you can't pay a bonus on money you never actually collected. That means paying close attention to three things: how it affects associate compensation, how it affects staff bonus calculations, and how it's represented in your accounting software so that expense is properly captured somewhere. Whether it's recorded as a straight deduction or as a net amount received, that's a conversation for your own accountant, I'm not one myself and can't advise you on the specifics there, but it's worth getting right, since paying taxes on money you never actually collected is an entirely avoidable problem.
So those are the four ways to make patient financing genuinely work well in your practice. I hope this was useful. It's a shorter episode this week, but I felt the subject deserved its own dedicated discussion. If you have any questions about this, you can always email me directly at jeffb@mgeonline.com, I'll put that link on the episode webpage. And if you'd like to learn more about MGE or how we can help, you can find us online at mgeonline.com or call us at (800) 640-1140. Folks, have a great week, and we'll see you at the next episode.