Dental financing plans: The dentist's part of the deal.
To us, a very interesting part of the topic of third-party dental financing was learning about how the dentist profits from these arrangements. It's not as straightforward as you might think.
Did you know that when a dentist participates with a third-party dental financing plan that they usually incur an expense?
You might think that by being both the treatment provider and the middle-man for a dental financing transaction (the party introducing the patient to the finance company) that the dentist would not only get the full amount of their patient's treatment costs paid to them up front but might also get some type of commission on top of that.
This is not the way things typically play out. Actually, when participating with a commercial credit plan, the dentist usually incurs an expense. And this will usually be on the order of at least five percent of the total amount financed by the patient and possibly even closer to fifteen. (This cost is substantially greater than the two to three percent "merchant fee" that a dentist would be charged by a credit card company. And this is why a dentist might be inclined to offer a discount to those patients who pay for their treatment in full in advance, either cash or possibly even when using a credit card.)
Why would a dentist be interested in paying a fee so you can finance your dental work?
The reason why dentists choose to participate with third-party dental financing companies is because of their bottom line. The dentist is simply doing that which they feel they must do so to keep their dental chairs filled with patients.
We've seen promotional information on the websites of dental finance companies that suggests that by reducing the expense barrier associated with their patient's dental treatment (meaning their patients having financing available to them) the dentist can increase their income on the order of twenty five percent. The financing has the affect of placing the dentist in greater demand because it helps the patients afford the treatment they need. It also helps patients to obtain those dental services that they don't have to have but want (such as high-dollar cosmetic dental procedures that are not covered by dental insurance).
There are other advantages for the dentist too. They get all of their portion of the treatment money up front, usually just a few days after the financing has been put in place. Determining the patient's credit worthiness (eligibility to participate in the plan) is turnkey and instant. And if the patient doesn't follow through and pay as promised, it's not the dentist's problem.
The fee the dentist pays for their patient's treatment financing varies.
We found it interesting that under different scenarios, the dentist's cost of allowing their patient's to finance their dental treatment varied.
» Scenario #1: The patient opts for an interest-free dental financing plan.
Some dental credit plans offer a no-interest option. The amount being financed, or the credit line being offered, typically needs to fall with in a certain dollar range (both a minimum and maximum limitation). The time frame associated with a no-interest option is typically two years or less.
While no-interest financing can be a great choice for those financially able to take advantage of this type of plan's strict terms, it is the most costly scenario for the dentist. (Which means that a dental staff member's concern that the strict terms of a no-interest plan may be too demanding for a patient and therefore a longer-term plan might be the better choice, may not be a genuine as it first seems.)
The fact that the fees are higher for the dentist only makes sense. If the patient isn't paying interest, somebody has to pay the financing company. In the case of a no-interest arrangement, the fees that are deducted from the lump sum payment to the dentist can be between ten and fifteen percent of the total amount financed. Ouch.
» Scenario #2: The patient extends their dental financing out over a longer time period, with interest.
Some patient's may feel that they will not be able to meet the strict payment conditions associated with a no-interest financing plan. They instead require a longer repayment period and the lower dollar amount payments that this approach can provide. The tradeoff is simply that the loaned amount will incur interest charges during the entire duration of the financing.
Most dental financing companies will offer extended-payment plans. As with the no-interest option, there will probably be some type of dollar amount (minimum and maximum) and time frame (two to five years) restrictions.
This interest-bearing scenario provides the more profitable situation for the dentist. Since the patient is paying interest, the dentist's fees imposed by the dental financing company are lowered. Usually on the order of five percent of the total amount that the patient finances (which is about twice the amount they would pay to a credit card company if you charged your bill on your card).
