Disaster #7 – The Debt that Didn’t Have to Be
Part 7 in a series: Disastrous Debt Interactions
Are you needlessly losing thousands or even millions to bad debt? Bad debt occurs in two scenarios: 1) a lending institution that collects from a borrower; 2) any other business that bills a customer for goods or services. Let’s say you’re in scenario number 2, and I told you that much or even most of your bad debt could be avoided before it ever even happens!
That’s because, thanks to e-payments, the paper bill is quickly becoming a relic of the past. By e-payments, I mean automatically drawing a payment against a credit or debit card, or directly from a bank account. (The latter is known as an “ACH” payment, shorthand for the banking industry’s Automated Clearing House system.)
E-payments can be timed to occur just moments after a product is shipped, a service provided or a monthly billing cycle ends. Thus, the merchant gets a win win: faster receipt of funds (usually same day), and much lower bad debt losses.
Just consider how many goods and services are now charged to you automatically these days: Your cellphone and cable service. Most likely, your car, insurance and utility payment. And, practically everything you buy from Amazon and other e-commerce merchants.
Yet there are some glaring exceptions to this trend: notably small and even some midsized business (SMBs) and the healthcare industry. Let’s start with small business.
Square’s reader enables even the smallest business to accept cards.
I. SMBs needlessly suffer bad debt because they’re under 3 misconceptions:
“It’s too tricky to start accepting card and ACH payments.” FALSE. Even a 1-person small business can get a Square account in just minutes that processes cards using your smartphone or tablet. It’s almost as easy to sign up with a processor adding ACH payments and automatic billing for subscriptions or other monthly bill plans.
“I sell to other businesses, and they won’t want to pay me by card.” FALSE. Many business buyers love to pay their suppliers by credit card to earn reward points or rebates. Even some very large companies use sophisticated “virtual card” programs to rack up millions in rebates without the need for a piece of plastic in an employee’s pocket.
“Processing fees are too damned high.” FALSE. First: you need to put processing fees in context with the amount you save on delinquent debt. Second: fees are highly competitive and go down based on your volume and fraud control history. Third: you can further reduce fees by steering more customers into ACH, which is generally cheaper to process than credit cards
II. The U.S. healthcare system wastes over $500 billion a year on lousy billing.
A 2013 McKinsey study reports that the U.S. healthcare system loses 15 cents out of every dollar to “revenue cycle inefficiencies” including late, unpaid and underpaid bills, plus the cost of invoicing and collections. Since then, there has been only glacial change in medical billing, and by 2018 U.S. healthcare expenditure hit $3.6 trillion, so the total waste today is certainly over half a trillion dollars!
While there are many inefficiencies at play here, one is obvious to anyone who has insurance and visited a doctor’s office or hospital in recent years.
Rarely does anyone tell you in advance what your out-of-pocket cost will be. In fact, with many insurance plans, you leave the medical office without paying anything at all.
The invoice arrives weeks later – sometimes over 2 months later – after the insurance claim clears, and the healthcare provider bills you for the remaining amount that’s your “patient responsibility” to pay.
Often, you’re surprised or confused by the amount. You may have paid several bills for the same procedure already. This one may be from a provider you never even knew about, such as a surgical assistant. Or it could be a hospital “facility charge” over and above what you already paid a radiologist to administer and interpret your X-ray.
All these elements – arriving so late after the fact, surprise amounts, and confusion between overlapping bills – conspire to make you much less likely to pay on time, and might even make you feel suspicious about whether you should pay it at all.
SwervePay’s system prompts for a payment by text, while it reminds patient of upcoming appointment.
Enter “card on file” billing.
Imagine, instead, if the healthcare provider gives you an “estimated out-of-pocket cost” when you check in for a procedure, and then swipes your credit or HSA (healthcare savings account) card for that amount.
Then, once the insurance payment clears, your card is automatically billed in case the remaining amount due exceeds the estimate. Or, if the actual amount comes in under-estimate, then your account gets a credit.
To make you even more comfortable, the provider could promise to get your permission before automatically charging anything over a certain limit: say $100.
No, this won’t solve the problem of surprise billing for an emergency heart surgery, or a medevac helicopter to pluck you up from the scene of a car crash.
But for the routine office visit, eye exam or chest X-ray it could work wonders. And save billions.