Deadbeat dentists can be the biggest drain on your cash flow and one of the most frustrating aspects of running a laboratory. David Sher, co-author of How to Collect Debts and Still Keep Your Customers, estimates that 18% of customers are considered "slow" payers and 2% have no intention of ever paying. Although chasing these overdue payments can be time-consuming and even awkward, letting them "get away" compromises the money-making potential of your business.
Collection experts agree that the best way to avoid collection problems is to stop them before they start. Your first line of defense is to establish a clear policy that lets your dentist-clients know, in advance, how and when you expect them to pay. "Afraid they'll jinx the sale, many small business owners don't explain their terms up front. That's a big mistake. Your ability to collect often depends on clearly defining your payment terms during the initial sale," explains Sher.
Having a well-defined policy gives you guidelines when following up on overdue invoices and helps ensure that attention to accounts receivable is part of your daily operations. Your policy should be written, given to both long-term and new accounts and include:
- When statements are sent and when payment is expected.
- Any discounts or incentives offered for early or pre-payment.
- Amount of service charges or interest for late payments.
- Under what conditions pre-payment or C.O.D. is required.
- Charges for returned checks.
Typically, there are two reasons why dentists don't pay their bills: lack of cash and dissatisfaction with the case. Therefore, it's helpful to explain the steps your customers should take if they aren't happy with a case. Precision Ceramics Dental Laboratory prints a comprehensive customer agreement on the back of its pre-printed prescription forms. It clearly spells out the lab's credit and remake policies and complaint procedures. "Our agreement lets clients know they have to register a written complaint within 10 days. So, if six months down the road, a customer tries to claim dissatisfaction as a justification for non-payment, the agreement legally protects us," says Mark Jackson, vice president and general manager of the Montclair, California laboratory.
The most common credit policy is to invoice monthly and offer the dentist 30 days to pay. However, this method can be detrimental to your cash flow. For example, if you deliver a case on the first of the month, bill on the 30th and the dentist takes 30 days to pay, you're waiting two months for payment.
Consider shortening your policy to net 10 or 20. For instance, Jerry Ragle, owner of Ragle Dental Laboratory in Champaign, Illinois, requires payment in full within 10 days of receipt of monthly invoices and charges a 1-1/2% late fee on balances that aren't paid within 30 days.
Preventive Strategies
In addition to establishing clearly defined policies, there are other preventive strategies that can help you keep tabs on delinquent accounts and encourage good payment habits:
A good bookkeeping system streamlines the collection process. Incomplete or vague invoices open the door for delay, so make sure your bills are complete and easy to read. Also, be sure you keep an accurate payment history on every account including the amount of payments and the date you received them--whether they're on time or not.
Minimize your credit risk. You can learn a great deal about the payment habits of dentists in your area by talking with your colleagues and part-icipating in laboratory associations and study clubs. "We network extensively with various dental companies, suppliers and other laboratories. All of us generally know the bad payers. We exchange their names and even share copies of checks so that we have their bank names and account numbers in case we need that information for court," says Marc Daichman, co-owner, Asteto Dent Labs, Maplewood, New Jersey.
Another way to weed out poor payers is to require new accounts to fill out a credit application. For example, Ragle's new clients must complete an Account Credit Information Form that requests banking information, trade references and the client's billing preferences such as monthly billing, prepayment or credit card.
Accepting credit card payments makes it easy for dentists to pay. You can even establish a system whereby, with the client's approval, you automatically bill his card on a certain date each month and send him a receipt. This arrangement ensures that you're paid on time and is less work for both of you.
Incentives for early or timely payment. If your invoices are normally due on the 30th, consider offering dentists who purchase a high volume of services a 1 or 2% discount for payment by the 10th. Offering Frequent Flier Miles is another popular strategy. For example, Asteto Dent Lab customers who pay by the 10th of the month can earn one mile for every $2 they spend. "We purchase the 'miles' in increments of 500 directly from Continental or American and receive certificates with our laboratory name on it," explains Daichman. "It costs us 1% of the participants' sales and has greatly increased our cash flow and enhanced goodwill with our customers."
Reward good payment habits. Most people who pay their bills promptly take great pride in doing so. Let them know you appreciate the way they handle the account by adding a hand written note on invoices and statements or sending a thank you for continued prompt payment. In addition to offering frequent flier miles, Asteto Dent periodically rewards high-volume customers who pay by the 10th with dental supplies or tickets to a Broadway show.
- Build relationships. Overall, the best way to prevent collection problems is to concentrate on building strong relationships with your dentist-clients and their staff members. Typically, your best paying clients are the ones with whom you have the best rapport, because they feel a sense of obligation to pay on time.
How to handle collection calls
Regardless of how stringent your preventive measures, you will inevitably find yourself needing to apply some gentle--or not so gentle--pressure to collect your money. "You shouldn't feel uncomfortable about picking up the phone and asking for money; after all, you've put a lot of hard work into servicing that client," advises Daichman.
Your objectives are twofold: to get the money and retain the customer's business. Attaining both goals can, of course, be difficult; in some cases, no amount of diplomacy will be effective. But keep your cool. "Losing control is understandable because the provocation is great, but it's not in keeping with your goodwill objectives and it seldom helps you collect," says Jackson.
Although a short grace period is customary, don't wait until an account is 60 to 90 days past due before you begin your collection efforts. "Studies show that the chances of getting paid drop about 12% each month that a bill goes unpaid. That's 36% after three months," says Sher.
First, prioritize your collection problems by how late the payment is and how much it's overdue. "Many small companies make the mistake of printing out an overdue accounts list and then attacking it alphabetically," says Brian Reese, a collections consultant based in Pittsburgh. "If you have limited resources, devote your energies to those who owe you the most and who are most likely to pay you."
You can start by sending a series of letters, each one becoming progressively stronger (see Collection Letters: One Lab's Approach below for samples). If your letters are ignored, you need to get on the telephone.
Your first goal is to determine why the dentist hasn't paid the bill, especially if he has been a good payer in the past. If he has simply overlooked the bill, your call serves as a timely reminder. If it's a problem with your service, now is the time to resolve it (this is where having a formal complaint policy as described previously is helpful). If the client is having a cash flow problem, you need to find an acceptable solution. It's a good idea to try to speak directly with the doctor, advises Daichman. "Dentists often don't want their staff members to know anything about money matters and we respect that, unless we can never get the dentist on the phone," he says.
Start by asking for payment in full. If you simply ask the dentist to send you a portion of the balance, you won't create a sense of urgency. It will also indicate that partial or delayed payment is acceptable to you, opening the door to ongoing collection problems.
If it becomes clear that the dentist can't pay his entire balance, work together on a payment schedule. Ask him how much he can handle per month; this way, he can't later use the "I can't afford it" excuse. Follow up with a letter that outlines your agreement, including the amount of each payment, the dates they are expected and any penalties or surcharges that apply if payment is not made.
When you get a promise to pay by a specific date, let the client know that you'll mark the date on your calendar. This puts pressure him to send payment quickly and indicates that you won't settle for empty promises. Another approach is to tell the dentist that you'll be sending an overnight letter on the appropriate date for him to use to send payment.
Above all, be persistent. If you relax your collection efforts after one or two telephone calls or allow weeks to pass between calls, your chances of getting paid will diminish. When a client promises to pay by a certain date, be sure to follow up on that date if you don't receive payment.
If you're dealing with a local client, another strategy is a face-to-face meeting. "I had one account from whom I had been trying to collect for several months. After he stopped returning my phone calls, I finally called the office and told the receptionist that I'd be there in about 10 minutes and expect a check for the full amount owed. The check was ready when I arrived," says Ragle.
The end of the rope
If all your efforts have failed and there's no hope of salvaging the relationship, it might be time to take legal action. Jackson asks his attorney to draft a five-day notice and personally deliver it to the dentist. "The in-person approach seems to be much more effective, so if the account isn't local, I contact the Chamber of Commerce in his city and ask for the name of an attorney near the client's office," explains Jackson. "This usually costs about $100, but may save me from giving as much as half of the outstanding balance to an attorney collecting on a contingency basis."
Other times, you may have to take the client to small claims court or hire a bill collector. For small claims court, you don't need a lawyer and the hearings aren't complicated. Payments in question are usually less than $15,000 but this varies from state to state; check your Yellow Pages under "local government" for help. "Small claims court is very effective, inexpensive and easy. Usually the threat of small claims court is enough to make the doctor pay. We've been to court three times and we've won every case," says Daichman.
If you opt for a collection agency, keep in mind that agencies often negotiate down the outstanding balance in return for payment, and then take 10 to 50% of the amount the client actually pays. A bonus: The Better Business Bureau tracks late payments through collection agencies and documents them, so your diligence may protect others from a deadbeat client.
