Don't Discount The Cost of Receivables

by Dave in ,

I saw a new dentist today, Dr. Jody Low in Dover, NH. He's a nice guy, and his office staff is pleasant, as well. Upon checkout, though, I was amused by the lack of logic behind their billing policy. If I have insurance, they expect no money from me up front. If I pay with a credit card, they charge me full price. But if I pay by check, they give me a 5% discount because (their words), they "have to pay a fee to the credit card company." Let's examine each of these:

  • Insurance payments mean they have to file with the insurance company, fill out various forms (online if they're lucky, paper if not), and wait. After weeks (or perhaps a month or two) the insurance company will either reply with a check or perhaps some letter/e-mail explaining how the paperwork wasn't coded quite right and they need to re-file. Once the check comes from the insurance company, though, it's typically going to be for far less than the dentist bills, due to special rates the insurance company has negotiated/dictated for such a procedure. Usually a doctor will have to hire someone full-time to manage this whole process.
  • The funds from check payments typically come in within 7 to 10 days, and in probably 90% of all cases the money shows up, no problem. There are those situations, though, where the check bounces for one reason or another, causing more time and paperwork for the office to collect. Once paid, the office receives 100% of the money, discounted indirectly by per-transaction banking fees.
  • Credit card payments are charged and authorized before the patient walks out the door, and the money is in the doctor's checking account the next day. Credit card merchant processors typically charge somewhere between 2% and 4% for this service.

Applying this understanding to my new dentist's policy means my dentist has inferred that the best case is to wait weeks or months for -- at best -- 70% of the billable amount to arrive from the insurance company, all the while paying the salary of the person whose job it is to manage such things. Barring that, the next best option is to wait 7 to 10 days for 95% of the billable amount, paid via check direct from the patient. If none of those are an option, the dentist will begrudgingly get 96% of his money the next day.


This policy (and there are many business which have adopted something similar) is based on the fact that the dentist sees that 2-4% from the credit card company and feels as though he needs to pass that cost through. In reality, the credit card payment costs him the least and nets him the most.

This is backwards. The business scenario isn't that much different from what we deal with here at BackBeat Media. Instead of insurance companies, we have ad agencies. And while agencies don't typically lower their rates after the fact, they do take quite a bit of handholding and red-tape-wading -- and time -- to get their bills paid. They always pay, mind you, and that's the only reason we give them the terms we do (after all, if an ad agency didn't pay their bills, they'd be out of business pretty quickly!). The rest of the companies we deal with, well, we pretty much guide them straight to the credit card path. It's easy, it allows us to efficiently manage our cash flow, and there are zero collections costs. We pay our 2.5% and off we go.

If I could get every company to pay with a credit card, I would. And we pretty much do.

In any event, I am eager to discuss this my dentist, meaning -- yes -- I'm actually looking forward to my next appointment! I'll report back if he has any wisdom I might have missed here. Until then, I look forward to hearing your thoughts in the comments below.