This week, we continue to examine how businesses can realistically implement and benefit from in-house financing — extending their own credit to help their customers afford their services. As we’ve pointed out in previous posts, the dental industry is leading the charge in this arena. In-house methods of dental patient financing have proven to be a highly effective source of both customer base expansion and wealth generation, and the metrics carry over to various other medical specialties.
Today, we’ll show how in-house financing makes the numbers work in your favor. In previous posts, we’ve thoroughly examined the benefit of expanding your customer base through in-house financing. When a dental practice chooses customized patient financing as a compliment to third party options, they are able to provide care to patients that would otherwise be turned away. These patients get the dental treatment they need, improving their health and lessening the risk of more costly procedures down the line. However, the benefit to the practice should not be understated. Let’s look at numbers around a practice that opens their doors to 20 new patients in the first 6 months of offering their own patient financing. Based on averages we see, lets assume that the average procedure price for these patients is $4,300., which results in $80,600 in new revenue that would have otherwise walked out the door, and this is just the first 6 months. Assuming that 30% of the procedure is taken as a down payment, the dentist is left with about $60,000 in payment plans. According to data compiled by Quality Dental Plan (an Extend Credit partner), a new patient is, over the course of the first year, worth $1,502 to a dental practice. Doing simple math on 20 new patients, that is an additional $30,000 in revenue, resulting in total new revenue of $110,600.
Granted, there is a bit of risk involved in financing new patients. As with any credit extension, riskier profiles should be evaluated. Furthermore, payment plans should be structured so that 100-140% of the hard-costs of a given procedure are covered in the initial down-payment. Thus, if the customer does default, the provider is still covered for all expenses. Future posts will go into greater detail about best practices for these types of loans, but across our base, we are seeing a 96- 98% return rate on these types of loans. Assume 12% interest on the 6 month portfolio mentioned above, you would see an extra $18,000 (approx.) in net profit over the life of the loans. Just think if you continued to write 20 new loans every six months.
Once again, this is all net-new business, which would otherwise be turned away by a third party financier. While we’re on the subject, even if the third party financing company would have approved the patients – the provider comes out way ahead. He saves the 8-10% discount they would pay the third party, and instead collects 12% interest on these loans. Using the 6 month example above, if the practice could have taken a third party financing option, and invested that money returning 5% interest (which is great in this market), they would end up $15,000 (approx.) behind doing it themselves.
A key consideration with this model is the recurring revenue stream that results for the practice, with the payments coming in every month. It is a big help in planning cash flow knowing that you that money coming in, every month.
A combination of prudent lending practices and state of the art loan-servicing software can make in-house financing an effective choice for any practice, allowing them to open doors to patients who be turned away otherwise, and generating wealth at rate competitive with many other investment options.