How frustrating is it when a patient doesn’t pay their bill? Super frustrating, right? And it happens all the time. You spend all this time and energy trying to collect, just to turn it over to a collection agency, who then charges you a fee. Oh, Accounts Receivable, what fun! The question is, should you charge the patient back for your collection fee? Is this legal and enforceable? What are your options?
And the answer varies. So, I decided to write an article regarding this important topic to help you determine if collection fees are right for your dental office.
Here’s the practical information your office should know.
Each state has different laws. In order to charge collection fees, and do so legally, certain conditions need to be met. For an official answer on whether or not your practice can charge collection fees, you should consult with your CPA or Attorney for legal advice.
Though, I cannot provide legal advice, I can speak from almost 20 years of experience working with dental practices and Accounts Receivables. One thing I know for sure is that before you find out whether you CAN charge collections fees, you should determine whether or not you SHOULD.
When determining if you should charge your patient a fee, the following factors should be considered:
One of the main purposes of the information sheet when the patient initially comes to the practice is to disclose this type of information. Customarily, it’ll say, “In the event you get turned over to our collection agency, you agree to pay a fee of X.” Your agreement should expressly state what the collection fee is and then needs to be agreed upon by the patient.
Many collection agencies charge the dental office 30-50% of the balance owed, if it’s collected. A fee this large is often considered unlawful if you were to simply add it to the bill. The collection company realizes that these accounts are usually uncollectible so they have to charge a high fee to be profitable.
If you’re going to charge a collection fee, consider a low, flat fee that is justifiable. Especially, if you’ve hired a company that charges this exact fee to you, it’s easy to substantiate to any enforcing entity on why you passed the fee onto the consumer; it’s a real cost.
Furthermore, a low, flat fee is best, because adding a percentage creates other problems.
There are important reasons each state has laws that limit how much a lender can add to a debt. For example, most creditors in many states can charge up to 29.99%, but 30% is the threshold where it’s generally considered illegal. These laws are constructed to help stop predatory lending practices from unethical businesses that hurt people and our economy. Many states have taken action against violators exceeding the maximum allowable, so it’s imperative you exercise good judgment.
If the debtor owes $1000 and the practice charges 25% for collection fees, it would be assigned for a total of $1250. If the debtor agrees to pay the agency $1000, chances are they won’t pursue the patient for the remaining $250. Why? Because it’s a soft fee, not a real cost, and generally, isn’t enforceable.
The practice generally has the right to charge interest (if allowed in their state) as they have extended a credit line to the patient. Practices do this as a means to help insulate them from the inevitable losses from non-payers. Interest often is not legally enforceable either, similar to the collection fee. Waiving interest is a good negotiation tactic by the practice if done properly. Consider using it as a motivator, waiving your interest fee if there is an immediate settlement, payments are established, or payment in full is made, rather than tacking on a collection fee.
First, let’s look at why this situation is commonly occurring in dental offices.
Source: CNN, MarketWatch, U.S. News
Clearly, Americans are struggling to survive (from a First World standpoint). It can’t be too surprising that their dental bill isn’t top priority. But that doesn’t mean your patients don’t have the means to pay.
Typically, their simply allocating their money towards other vendors that have a perceived greater impact. For example, houses can be foreclosed, cars towed, and cell phones disconnected to name a few. When it comes down to it, patients generally fall into 1 of 3 categories:
Basically, a dentist has no recourse, the procedure is already performed and leverage is low. So, the dental bill comes in way behind a long list of other financial obligations.
If the bill is disputed, then that needs to be worked out at the practice level. A good rule of thumb is to have the patient pay what they acknowledge that they owe and you may want to write the rest off and salvage the relationship. Many creditors and agencies won’t pursue disputed balances as it’s a simple risk management decision.
If the bill is undisputed, recommend to the patient that it’s in their best interest to start making payments immediately or consequences are inevitable. Even if it’s only $10 a month until they get back on their feet, it shows good faith and may help you keep the patient and stop the bill from going to collections. Always have the debtor agree to automatic payments drafted on a checking or credit card whenever possible. Personally, I would much rather get guaranteed lower payments than higher payments dependent on the debtor sending them in the mail.
Most accounts that are turned over to collections are due to a lack of communication and payment from the patient. Practices get so frustrated that they see no other option. Often the patient feels just as bad about their inability to pay, reinforcing their avoidance, but ultimately, escalating the matter, creating more loss for all parties involved. For this reason, before turning the account over to collections, ensure you’ve tried communicating to the patient the consequences as well as all available solutions.
The golden nugget to take from all this information is that just because you can do something, doesn't mean you should. The best way to collect is by being proactive with your insurance information gathering, filing and setting expectations with the patient to pay at checkout or have a mutually agreed upon payment arrangement before they leave.
If you decide to turn the account over to collections, check with your state and CPA and/or Attorney to see if it's legal to charge the patient a collection fee. Then make sure you're charging a reasonable fee and make sure it's not giving the patient an additional reason to not pay you or to cause you harm.
All in all, I hope this information was useful. If you wish to contact me for Accounts Receivable help or assistance, please feel free to contact me here.
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