time to re-think the way we conduct business in our veterinary practices. Times have changed and will continue to do
so, and it is the practice owners and managers that acknowledge this, and seek
new ways to meet the needs of pet owners, whose businesses will thrive,
regardless of the economy.
to the 2011 Bayer Veterinary Care Usage Study, the availability of payment
options is one of four key drivers for increasing veterinary visits. Both pet
insurance and third-party financing are the most obvious choices; but
unfortunately most pets don’t have insurance, nor do all clients qualify for third-party
financing many of us offer in our practices. Times are tough, and no matter how
much they love their pets, many clients no longer have the means to cover the
full cost of optimum preventative care let alone an unexpected illness or
presents veterinary practices with three options: the first is to subsidize
these services through discounts. But it
is a business, not a non-profit organization, and this type of generosity will
eventually lead to bankruptcy. The
second option is to only provide care to clients that are able to pay in full
at the time of service. While this is
ideal in a perfect world, the limited number of clients that can do so may not
generate enough revenue to keep a practice afloat. The third option is to look for new ways to provide
the ability to pay for care over a period of time.
is devastating for everyone involved when pets become ill or injured and their
owners are unable to pay for treatment. This is the stuff of heartbreak and
disillusionment, not to mention compassion, fatigue and burnout within the
walls of our hospitals. In these types
of situations, extending credit in a controlled environment with the assistance
of a third-party solution may represent the most viable option. There are many
practices experiencing the benefit from this type of program. But all practices
are unique, and the first step is to ensure that in-house financing will
effectively increase patient care and generate more revenue for the practice.
= Lending Money
first thing to understand is that extending credit is the same thing as loaning
money. This means that extending credit is subject to the same state and
federal consumer laws and regulations to which lenders must adhere. There are critical legal requirements to
manage in every step of the process –from the application and agreement forms,
to borrower communication requirements, running credit reports, document
retention and storage, missed payment policies and default resolution.
to ensure that your practice is up-to-date with ever-changing laws and
regulations is not something that a practice can, or should attempt to, handle on
its own. It is overwhelming and there is
far too much room for error. If you
factor in the frequency of staff turnover, it is easy to understand why trying
to handle in-house financing on your own is not in your best interest. The
simplest and safest solution is for a practice is to align itself with a
professional loan servicing company that can provide a guarantee that their
forms and protocols are in compliance with all laws and regulations.
Plan that Includes a Risk Assessment Strategy
it comes to deciding who is eligible for extended payment terms and who is not,
the decision should be based on a defined business strategy and then on
criteria that is consistently applied to all applicants. A properly designed program sets benchmarks
for the number of credit applications approved as well as the dollar amount of
credit a practice is willing to extend.
A good loan servicing solution will provide significant automation in
this area, making it very simple for a practice to enter their rules and not
have to worry about each loan. Good
solutions will also provide a “review” mechanism for special cases.
your homework! Evaluate current client
compliance, and compare the number of applications submitted to your
third-party lender to the number of approvals you have received. Talk to your team and get their perspective
on whether there is not only a need, but a viable group of potential applicants
based on the criteria you intend to use. Has euthanasia in non-geriatric pets
increased as a result of a lack of payment options?
risk must be evaluated based on the purpose of the program. For example, if the criteria for approval is
too stringent, then the program will have little impact or value. If the credit criterion is too lenient, the
percentage of risk associated with missed payments and bad debt will be an
issue. It will be essential to measure
and monitor these metrics on a monthly basis so that adjustments can be made if
performance is deviating from pre-determined benchmarks. It is a good practice to look at factors
beyond just a credit score, such as banking information, employment history,
references and others.
that credit criterion must be applied consistently for all applicants. While this
may seem obvious, it is frequently disregarded.
The best way to avoid deviation and ensure compliance with external
lending rules, is to have a written policy and monitor and enforce this policy
regardless of individual circumstances.
If adjustments are to be made, they must be done so across the board.
we talk about in-house financing, we are not referring to the “method” so many
of us currently employ, which does not involve any credit risk assessment, a
significant deposit, interest payments, or aggressive pursuit of
non-payment. We are also not talking
about held checks or storing a client’s credit card information so that it can
be processed on a monthly basis: although currently legal, both methods involve
significant risk and are labor intensive.
of the case, the first thing is to make sure that any hard costs incurred
(materials, medication, etc.), including associate compensation if paid on
pro-sal, are completely covered through the client’s up-front down payment. The only thing that should be financed is a
portion of your profit, which ensures that you don’t “lose” money, while trying
to grow your practice and provide needed care.
financing involves the automatic debit of a client’s bank account using an ACH
network (Automatic Clearing House). This
is the preferred payment method for professional lenders and other businesses
that manage recurring monthly payments.
The transaction cost associated with ACH transactions are much lower
than for a credit card transaction. If a
payment is unsuccessful, there is no charge to the business as there is with
NSF fees when a check is returned. Once
an ACH transaction settles, there is very little risk of the transaction being
ACH payments are the key to minimizing the risk of offering credit, and this is
the only form of re-payment that should be offered to clients. Just as in the case of legal compliance, it
means working with a professional loan servicing company to put this system
into action. There are many companies to
choose from and it is important to check references and ask for recommendations
from colleagues currently extending credit in their practices. It is important to find a partner company
that not only provides the basics, but who
also has experience in the veterinary industry and offers tools and guidance
for building a formalized platform to manage each step of the entire credit
Missed Payments &Defaults
automating the payment process using electronic debit to a borrower’s bank
account greatly reduces the risk of default, missed payments still occur. This is another point in the process where
strategic payment management by a third-party professional can be extremely
helpful since collecting money is definitely not a task at which most of us
prevent missed payments, consider implementing a protocol where each borrower
receives a monthly payment reminder five days prior to the funds being
withdrawn from his account. If a payment
is still missed, ask a company representative to call and resolve the situation
and obtain immediate payment.
the borrower is unable to make immediate payment, the representative of the
company would then call the practice to determine what, if any, special
arrangements should be made to avoid sending the client to collections. It is up to the practice to offer a
restructured payment agreement, a change in the due date, or in extreme cases,
to settle the debt at a discount. Keep
in mind that all this can be less painful, both financially and emotionally,
than sending a client to collections.
Consider all the
faced with a limited number of payment choices to offer pet owners, extending
credit to clients through an automated in-house financing plan is an additional
option worth considering. When done
correctly, it can be a win-win situation for all parties: the pet owner, the
practice, and most importantly the pet.
a program to succeed, the critical element is accountability within the
practice. When all team members,
regardless of position, “walk the talk,” and commit to the protocols and
requirements set forth without exception, extending credit can be a lucrative
addition to the payment options a practice provides to its clients.
# # #
Jessica G. Lee,