Orthodontic practices are businesses with a promising future, but managing cash flow is no small feat. We often face the challenge of balancing expenditures with patient payment terms. The payment terms for orthodontic services are usually 18 months or more. At the same time, overhead costs and expenses are generally required in 30, 60, or 90-day payments, resulting in a gap that can be difficult to manage. Let’s discuss how orthodontists can balance expenses and patient payment terms to maintain a healthy cash flow.
Understanding the Importance of Cash Flow Management
The first step to achieving financial success in an orthodontic practice is understanding the importance of cash flow management. Effectively managing cash flow involves paying close attention to cost structures, expenses, and revenue cycles. When there is a good juggling of costs and revenue cycles, one can effectively create a balance that ensures a steady cash flow while operating an orthodontic practice.
Managing Overhead Costs
The overhead costs of running an orthodontic practice can put a considerable dent in cash flow. The overhead typically includes rent, team wages, marketing, lab fees, and supplies. First, an orthodontist should itemize all expenses to understand the fixed monthly costs incurred in running the practice. We can often negotiate these into payment terms that soften the blow to cash flow. Secondly, considering cost-cutting adjustments such as negotiating lower rent, leveraging digital marketing, and outsourcing administrative, bookkeeping, and HR tasks could help reduce expenditure. Orthodontic practices should aim to manage labor costs and lab and supply expenses, leveraging efficiency and technology to reduce labor demands while driving volume discounts in the supply and lab fees that commonly affect overhead significantly.
Balancing Treatment Plan Payment Terms
Orthodontic treatment plans are often at 18-month payment terms, with many offices offering payment terms within treatment times, and in some cases, these could cover longer-term goals (2 years and beyond). However, it becomes more complicated when considering that orthodontists must balance the treatment plan payment terms with their expenses, which are often higher within the initial stages of treatment. One effective cash flow strategy is to leverage the time value of money with patients who pay in full upfront. If a significant proportion of patients pay in full, this would create a more substantial cash flow buffer.
Utilizing Payment Plan Options
One innovation that has helped manage cash flow in orthodontic practices is the payment plan options offered to patients. Payment plans spreading treatment costs throughout the year can help ensure higher acceptance rates. Orthodontists can provide monthly payment options to patients internally or through finance industry options. CareCredit, LendingPoint, etc., are some options that afford patients better flexibility while managing their expenses.
Emphasizing Effective Communication with Patients
More often than not, patients are balancing payment agreements and schedules, trying to find ways to afford orthodontic treatment. Orthodontic teams must communicate effectively between patients and their staff to clarify payment expectations and plans. When a patient’s payment is automated, it helps avoid the headache of cash management, which could lead to an erosion of an orthodontic practice’s free cash.
Conclusion
Managing cash flow can be challenging, especially with varying expenses, payment schedules, and payment terms, as an orthodontic practice demands. Cash flow management involves reviewing revenue cycle cost structures and balancing short-term and long-term goals. Orthodontists can better manage their cash flow and increase profitability by effectively communicating with patients, employing payment plan options, leveraging patients who pay in full, and controlling overhead costs. It takes work, strategy, and commitment. However, with due diligence, orthodontists can achieve success in their practices through steady cash flow management.
