The paradoxical problem of up-front payments
I’ve noticed a surprising and fascinating trend in recent years.
Dentists telling me that they have a cash flow problem because they have to deliver dentistry for which they have been paid up-front.
The payments can either be made in cash by the patient at the point of sale (“we offer an early-bird price that is 5% lower than our Pay As You Go Price”) or the patient has taken the dreaded interest-free finance (IFF) option and the money is in the bank.
I then hear two variations of a moan:
I haven’t been able to earn much money this month because I’ve been delivering dentistry that was paid for in the last three months, or
I’m at the end of this treatment and the patient is driving me nuts with repeated appointments for adjustments “that I’m not being paid for”.
I’m a little bewildered by the moaning – less so by the circumstances in which the moaning takes place.
During my financial services sales management career (a.k.a. ancient history), I noticed that many of my top sales people worked in a 90-day cycle:
Month 1 – prospecting;
Month 2 – presenting financial plans;
Month 3 – closing sales, doing all the admin/paperwork and getting paid.
Often, said sales people would be knocking on my door in months 1 and 2, complaining that they had no money and asking for subs. In fact, the insurance company I worked for recognised the 90-day phenomenon and would provide temporary funding to iron out the peaks and troughs in cash flow.
Arriving in dentistry in the mid 90’s, I was surprised to see a similar effect amongst dentists delivering higher-value treatment plans:
Month 1 – new patient consults;
Month 2 – presenting and closing on treatment plans – and getting paid up-front;
Month 3 – delivering all that dentistry.
So, even though the timing of the payment is slightly different, we see a similar feast and famine effect in some pay cheques (who ever has a cheque any more – I need a new expression there).
It wouldn’t take much more than primary school arithmetic to figure out that the up-front payments should be held in a reserve account and drip-fed into a personal account so as to smooth the cash flow.
However, where that seems not to be the case -we hear the moaning.
The answer to this problem isn’t maths though – it’s emotional – about changing the attitude of the clinician to the work and the patient.
The existing symptoms of “delivery fatigue” seem dangerous to me on two counts. Firstly, the clinician getting bored with the work and secondly, bored with the patient.
One can lead to a clinical mistake (and we all fear the consequences of that), the second can create a patient who feels unappreciated.
Put the two together and you have a ticking bomb.
So – whilst I have no commercial gripe with patients paying up-front – and even though I have a huge gripe with IFF (because, as I’ve said many times, it costs a third of your profit) – keep a careful eye on those clinicians who get paid up front – because “delivery fatigue” is a worrying place.