Is In-House Financing a Good Thing for Your Orthodontic Start-up?

​How many times have you heard that a “healthy” practice should in-house finance 70% of their cases? Having done multiple start-up orthodontic offices, I can tell you that in-house financing, although sometimes the only option for patients, is unhealthy for your practice’s cash flow. At some point, someone decided that it is a good idea for our practices to become lenders and finance treatments with high ticket prices.
The choice between in-house financing and third-party financing can significantly impact the practice's cash flow and overall financial health. Just like any other business, your cashflow is the most important indicator of your pratcice’s financial health. Let's examine the differences using two hypothetical practices, both with an expense component of $1,500 per case.
Practice 1: In-House Financing
In this model, the practice handles financing internally, with a downpayment of $500 per case, total case production of $5,500, and a 2.5% merchant cost on monthly payments. Insurance payments are $1,000, distributed quarterly over two years. Here's a snapshot of the monthly net operating income (NOI) for the first year:
Net Operating Income (NOI) Per Month for Year 1:

• Month 1: $2,062.50
• Month 2: $4,675.00
• Month 3: $7,162.50
• Month 4: $9,775.00
• Month 5: $12,262.50
• Month 6: $14,775.00
• Month 7: $17,587.50
• Month 8: $20,262.50
• Month 9: $22,775.00
• Month 10: $25,387.50
• Month 11: $27,887.50
• Month 12: $30,525.00

Yearly NOI:

• Year 1: $217,050
• Year 2: $282,165 (30% assumed growth)
• Year 3: $352,706.25 (25% assumed growth)

Practice 2: Third-Party Financing
This practice utilizes third-party financing such as Cherry or CareCredit. Patients, if qualified, will actually pay less for the downpayment to start, but the practice receives immediate payment minus a 10% financing cost. Insurance payments are the same, and the overall cost per case remains $1,500.
Net Operating Income (NOI) Per Month for Year 1:

• Month 1: $16,000
• Month 2: $25,600
• Month 3: $32,000
• Month 4: $34,800
• Month 5: $37,200
• Month 6: $40,000
• Month 7: $42,800
• Month 8: $45,200
• Month 9: $48,000
• Month 10: $50,800
• Month 11: $53,200
• Month 12: $56,000

Yearly NOI:

• Year 1: $466,800
• Year 2: $606,840 (30% assumed growth)
• Year 3: $758,550 (25% assumed growth)

Conclusion
Third-party financing programs such as Cherry and CareCredit can significantly enhance the financial health of orthodontic start-up practices. These programs provide substantial immediate cash flow, allowing practices to focus on patient care and insurance receivable management without the burden of managing financing internally. Additionally, this can reduce your practice’s delinquency rate dramatically lower. With higher and more consistent net operating income, practices can reinvest in growth, enhance patient services, and ensure long-term stability. In a different article I will share with you how to implement these programs at your offices with the least resistance.