It's the health of the receivables that counts!

Feb. 1, 2001
I read with great interest - and with a smile - "The Great Receivables Debate" (November 2000 issue, Dental Economics).

Paul Zuelke

I read with great interest - and with a smile - "The Great Receivables Debate" (November 2000 issue, Dental Economics). One side of the debate seems to propose granting credit to optimize case acceptance and productivity, while the other is proposing the old school "cash-only" ap proach. They each pointed out weaknesses in the other's argument, but I believe the logic of the debate question itself is faulty.

Ms. Hollett and Dr. Wahl, in their arguments promoting a "cash-only" practice, fail to address the issue of the horrendous (by our standard) problems with failed and cancelled appointments, emergencies, weak case-acceptance rates, poor per-hour productivity, and a poor rate of new patient referrals from existing patients that offices with a "cash-only" financial policy experience.

These two consultants seem to think that it is somehow more efficient and profitable to do crowns on No. 18 and No. 19 at two separate times, rather than doing them at one ap pointment. "But wait!" they say. "We recommend outside finan cing to our patients who cannot afford our 'cash-only' policy." I wonder if they also claim to be able to teach pigs to sing?

Third-party financing and cash-only financial policies do work reasonably well for the "retail" dentist. We identify "retail" dentists as those who do not depend on patient referrals as their primary sources for new- patient flow. Rather, these dentists depend on retail advertising (Yellow Pages), participation with managed-care insurance plans, direct-mail marketing, etc., as their primary sources of new-patient exams.

Since the vast majority of patients from these sources are weak-quality patients - or perhaps "A" patients, but with a weak dental IQ - being a cash-only practice and using outside financing can be made to work. The practice can sometimes even gross and net a lot because high-patient volume - even with very low production per patient - can do wonders for gross income!

The doctor(s) in these practices can make loads of money sometimes, but the practice still will be dealing with the problems I just mentioned, along with a miserable quality of life within the practice itself. The issue that no one seems to talk about is that 80 percent of quality patients (mature, stable people with a reasonable dental IQ) soundly reject third-party financing! Does that mean we should phase treatment for the very best part of our patient base?

With a significant exception, I was much more in agreement with Dr. Steven's argument. His basic premise can be easily summarized: Dentistry is elective. Patients will buy what they can afford. If I allow monthly payments, I will have better case acceptance, better productivity, happier patients, better referrals, reductions in failed and cancelled appointments, fewer emergencies, etc.

The only factor missing in Dr. Steven's argument is the one that sinks most practices that routinely allow payment plans. It also is the factor that gives credibility to the consultants who teach their clients to be "cash-only." That factor is what we call "credit management," the ability to identify risk and to grant credit proportional to the risk.

Most proponents of a cash-only practice have never understood that with good verbal skills, good administrative techniques, and good policies, a practice can grant routine credit to patients and never suffer financial loss. We have hard statistical evidence of more than 800 private, fee-for-service dental practices that are routinely granting credit to their patients and have bad debt write-off of less than half of 1 percent of annual gross.

These practices do carry receivables, but these are healthy receivables and they total significantly less than two times average monthly production. It is not a coincidence that these same practices tend to have an extremely high level of production per hour worked.

Hollett and Wahl seem to believe that receivables are the great Satan of dentistry and that, to be healthy, a dental practice should have few, if any, receivables. In fact, virtually every loan officer, credit manager, Fortune 500 comptroller, etc., will confirm that it is only unhealthy receivables that cause damage. A healthy accounts receivable is not only an asset to a business (including a dental business), but it can be considered a necessity.

I believe the debate over the issue of granting credit vs. being cash-only is foolish when the premise itself is faulty. If a comparison were made between a typical "cash-only" practice and a practice that is marketing toward quality patients, formally identifying risk, and granting credit proportional to the risk, the cash-only practice would have to tuck its tail between its legs and head for home! The credit-granting practice would produce more income in fewer working hours, have a much better net, and would enjoy a quality of life within the practice that enriches the doctor and the entire dental team.

Paul Zuelke, president of Zuelke & Associates, has an extensive professional background in lending and corporate finance and is a leading authority in using effective credit-granting to build a quality health-care practice. He can be contacted by phone at (800) 845-4766 or by e-mail at [email protected]. Visit his Web site at

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