In-house payment plans or third-party financing: what each one really costs a practice

Almost every orthodontic practice offers instalments, and almost none has compared what the two ways of running them actually cost. The decision is usually made once, early, on a recommendation, and then never revisited even as the practice grows and the arithmetic changes underneath it.

The two models

In-house: the practice sets the schedule, the family pays the practice directly, usually by direct debit, and the practice carries the risk if payments stop. What it costs is the collection rail, a few cents to a dollar or so per transaction, plus the software and the staff time to run it.

Third party: a financing company pays the practice, often up front or on an accelerated schedule, and collects from the family. The practice offloads default risk and most of the administration. What it costs is a fee, usually a percentage of the treatment fee or of collections, sometimes dressed as a platform charge.

Do the arithmetic on your own numbers

Headline percentages are small enough to feel harmless. Take your actual annual collections and multiply. A practice collecting one and a half million with a three percent effective fee is paying forty five thousand a year. That is a full-time team member, every year, and it grows as the practice grows.

Then ask what that fee is buying. If it is buying genuine risk transfer on families who would otherwise default, it may be excellent value. If most of your families pay reliably, you are insuring a risk you do not have.

Know your actual default rate

This is the number that decides it, and most practices cannot state it. Over the last three years, what proportion of contracted treatment fees were never collected? Not late, never collected.

For most orthodontic practices with a reasonable deposit and direct debit, the figure is low. Orthodontics has a structural advantage here that general dentistry does not: treatment runs eighteen to twenty four months with regular visits, so a family who stops paying is a family you are still seeing. Problems surface early and are usually solvable in the chair.

If your true default rate is one or two percent and you are paying three or four to remove it, the insurance costs more than the risk.

The relationship question

There is a second cost that never appears on an invoice. When a third party collects, they also chase. Their letters go out in their name and their tone, to your patient, about the treatment you are providing. You will hear about it at the next appointment, and you will not have seen the correspondence.

An in-house plan keeps that conversation inside the practice, where it can be handled with the judgement a long clinical relationship deserves. A missed payment from a family going through something difficult is a very different conversation when your treatment coordinator has it than when a collections department does.

What makes in-house plans work

The reason practices outsource is rarely the risk. It is the administration, and that is a solvable problem.

• A deposit that is meaningful, taken before treatment starts.
• Direct debit rather than cards for the schedule, so instalments do not fail at card expiry.
• The plan agreed and signed at the same moment as the treatment agreement, not a separate errand.
• Automatic alerts on a failed payment, so it is dealt with in days rather than found in a quarterly review.
• Split agreements where two guardians share the fee, so neither is chased for the other's half.
• A payment history any team member can see without opening a spreadsheet.

With those six things running, in-house instalments take very little staff time. Without them, they are miserable, and outsourcing looks like relief at any price.

When third-party financing genuinely makes sense

It is not always the wrong answer. If a practice serves a population where default is genuinely high, or is growing faster than its cash flow can carry, or has no realistic path to running the administration well, transferring the risk is a rational purchase. The mistake is not using it. The mistake is using it for years without ever checking what it costs against what it prevents.

The questions to ask before you sign anything

• What is the total effective cost as a percentage of the treatment fee, including every processing line?
• Does the fee scale with our collections, and is there a ceiling?
• Who contacts the family when a payment fails, in whose name, and can we see it?
• What happens to plans already in progress if we leave?
• Who owns the payment data and the family relationship?
• Is there a minimum term, and what does leaving require?

Hey32 runs in-house instalment plans as part of the platform: direct debit collection, split agreements between guardians, failed-payment alerts, and full payment history, with processing passed through at cost and never a percentage of collections. The detail is on the payment plans page, and the full pricing is published on the pricing page.