Despite the plethora of potential benefits, many businesses are cautious of in-house financing, where they extend their own credit terms to customers. As we’ve mentioned before, the concept of store credit is nothing new, but while the small-town convenience store clerk knew his customers personally, and could track a few payments on a handy note-pad, the model can seem unsustainable in a modern business environment. Running and servicing multiple loans based solely on goodwill toward the consumer can turn out to be risky and time consuming. The hard truth is that in many cases, without an airtight, automated system, doing your own in-house financing is simply a bad idea. Take, for example, a business that launches their own in-house financing plan, and organizes all their loans on a spreadsheet. Seems like a good step in the right direction. They allocate time from one employee as a billing manager, spending a few hours each week tracking and collecting the payments. Within the first month, they have 50 payment plans on the books. However, out of those 50, about 5-10 default each month. Suddenly our billing manager’s workload has doubled, as she must spend hours making calls and attempting to collect the payments. Given that she still has her day job, this extra task has now become a headache, and falls by the wayside as her daily work needs to get completed. The result is that more payments slip through the cracks. All in all, this results in a loss for the business. It’s no wonder many small businesses have come to the conclusion that in-house financing is a bad idea, or at least out of their reach. However, if the business utilizes an automated system to track and [...]
As we made clear in our earlier posts on dental patient financing and veterinary wellness plans, the most apparent advantage of in-house financing is the ability to expand your business by reaching out to consumers who may have trouble affording your services. This system has helped thousands of dentists, cosmetic surgeons, and vets provide needed care to patients when they normally would have turned that patient away. However, the advantages of an in-house financing system work just as well outside of the medical space, even in industries that revolve around hard-costs. In one example, Bill, a general contractor, was looking to expand his business, but found it difficult to differentiate himself from his competitors. At the same time, he also noticed that nearly every contractor in his market was turning down business from clients with credit scores in the neighborhood of 650. If Bill could find a way to finance these clients — with minimal risk to his own business — he could fill a niche left open by his competitors and nearly double his client base. The key to successful in-house financing is developing a plan that is accessible to the consumer, while minimizing risk for the provider. A contractor’s foremost concern is always hard costs, so Bill set up his payment plans so that these were completely covered in the down payment, with the rest his fees covered in installments. Thus, even if a client defaulted on a payment, Bill knew his hard costs were already covered, and his loss was minimal. Advanced servicing software made it easy for Bill to track and collect on his payment plans, and — as an added benefit — saved him the cost of outsourcing his receivables management services to a third-party [...]
Our nation’s current financial climate presents a challenge for small businesses in any field. The credit crisis has affected a substantial portion of the country’s consumer base; 37% of the country has a credit score of 650 or lower, and approval rates on loans are frequently tightening. A lack of access to financing options can often act as a barrier between consumer and provider. Turning down these customers outright ultimately means turning down business from a high percentage of the population. What if there was a practical way to meet the consumer halfway, and take care of the lending yourself? It’s no surprise that many businesses are taking matters into their own hands, and using innovative financing models to make their services more available to the consumer. While we have made the case for membership plans and their success in providing access to medical procedures, this model may not be right for every business. In other cases, in-house financing is the key to putting your services and products in the hands of your client. At its core, modern in-house financing is an updated version of the small town shop-owner keeping a “tab” for his customers. When the shop-owner knew the customer and saw him on a daily basis, this model made sense. All he needed was a small notepad and a #2 pencil to keep track of the various purchases made, trusting that he would be repaid in a reasonable amount of time. While the simplicity of this system is charming, it’s largely been abandoned in the modern age. Keeping track of multiple loans is demanding, and the #2 pencil and notepad aren’t enough. Without a comprehensive system to track lending, providing “tabs” can be costly and [...]
This is the sixth installment in our series, "Establishing Best Practices for Extending Credit in Today's Economy." In our previous blog posts, we discussed getting organized to offer credit to your customers, best practices for processing credit applications and creating credit agreements, and ensuring payment. In this blog post, we will focus on best practices for handling missed payments and defaults. Strategies for Handling Missed Payments and Defaults While automating the payment process using electronic debit to a borrower's bank account greatly reduces the risk of payment default, missed payments still occur and can lead to loan defaults. So given that we followed best practices during the application process and are using automated payment processing, what steps are recommended for handling missed payments? Automated payments fail for a variety of reasons. Assuming payments are made via ACH, a payment may fail due to insufficient account funds a closed account . Generally, sending a payment reminder to the borrower prior to each payment due date will ward off these issues before they occur; but when they still happen, it is best to immediately contact the borrower to discuss the missed payment and agree upon corrective action such as an immediate payment to get back on track. Taking manual payments to correct a missed payment forces the issue with the borrower. They have to respond to your request by either coming into your office with a payment, authorizing an immediate debit of their bank account, or providing you with a credit card for payment. If they decline to correct the situation immediately by seeking a delay in payment or declining to honor the payment agreement, you know that you have a more serious potential default situation. Even in [...]
If you are planning on attending PNDC in Seattle this week, make sure to stop by our booth (# 215) to say hi and learn more about the great services ExtendCredit.com offers Dentists and Medical Billers. Sponsored by the Washington State Dental Association (WSDA), the Pacific Northwest Dental Conference (PNDC) offers two days of continuing dental education with over 50 nationally-renowned speakers and a dental trade show of more than 350 exhibits. With almost 9,000 attendees, the PNDC is the largest gathering of dental professionals in Washington. Contact firstname.lastname@example.org to arrange a time to meet while at the show or to learn more about ExtendCredit.com.