In-house financing software can be a powerful tool for turning leads into loyal patients, while generating an extra revenue stream along the way. By working with patients to finance procedures they otherwise couldn’t afford, your practice has the potential to fill its appointment books and provide care to many who couldn’t afford it.
But the hard truth is that extending credit in this way does involve a bit of risk for every procedure financed. For this reason, it’s important to decide what level of risk you’re comfortable with, before setting your lending criteria. We have doctors in our network who employ hard and stringent credit requirements, only providing payment plans to the safest candidates. As a result, their number of approved procedures is small, but so is their default rate. On the flip side, there are gung-ho practitioners with more relaxed requirements who approve nearly everyone who walks through the door. While their default rates are higher, the revenue and profit stream from the procedures and interest on the plans make the ends justify the means.
One of the most important decisions one can make when establishing an in-house financing program is picking a comfortable place on the risk/reward spectrum. However, the great advantage of creating your own in-house program is that once that decision has been made, modern technological tools make it easy to set-up and automate your program based on the parameters you’ve established.
The very beginning of the process — evaluating a potential customer — should begin with set parameters on a number of factors. Modern automated software can run credit, banking and fraud checks at the click of a mouse, and that mouse click may very well be the end of the evaluation for our more safety conscious lenders. If all the numbers meet a pre-set minimum, then it’s time to schedule the procedure and set the payment plan! Those that meet the set standard will carry the smallest default risk, making this system a safe bet for those looking to book a few extra procedures a month.
However, more “aggressive” doctors know full well that in today’s credit environment, this hard threshold is only a small part of the picture, and can easily exclude many individuals who are more than capable of paying off their loans. As we discussed in our previous post on Origination Workflow, an administrator with override capabilities can make final approval decisions based on a number of factors much deeper than those mentioned above. In these cases, the terms of the loan can be customized to include higher down payments and interest rates to account for a greater risk, all of which can once again be customized at the click of a button. Last week’s post on Individual Based Credit Assessment further examines the importance of these administrators.
As you can imagine, practices that relax requirements to maximize returns face a greater challenge in minimizing default rates. The key to stemming the default tide is a proactive approach — structuring a program that has fail-safes in place from step one, rather than trying to chase people down months after their last missed payment. Automated software with payment reminders and immediate follow-up can prevent and handle soft defaults in a uniform manner, and greatly increase the return on the investment.