Is No Money Down a Good Financing Idea

Not long after I started my consulting business thirty years ago, I worked with a  large, privately owned company in the industrial products business that was having a poor rate of success with closing sales with new accounts (what you would call a conversion rate). As part of my work with the company, I went into the field and observed some of their more experienced account representatives on sales calls with new, potential customers. It did not take long to identify the problem.

A business tactic long endorsed as ‘the gospel’ by senior management at this firm was the practice of giving samples of the company’s products to their customers – usually facilities managers and the like – to try on a “trial” basis. The idea was that, after sampling said product, these buyers would find that my client’s offering was superior to what they were currently using and would therefore place an order. The company was getting abysmal results from this effort and wasting tens of thousands of dollars on wasted resources in the process, and it wasn’t hard to see why.

The problem, you see, is that the samples were free, which meant that the person receiving the said item had no investment in it whatsoever, and therefore no incentive or commitment to actually try it. For that reason, it would sit, untouched and unused, on a file cabinet for a few days or weeks and  eventually end up in the trash can, a testament to the fundamental problem with trying to do business when no financial commitment is involved on the part of the prospective buyer.

Which brings me to my opinion on offering no-down-payment treatment financing. I have worked with several well-respected doctors who do offer this option and claim to have had good success with it, so I am not going to suggest that, in certain markets, it may be a useful and effective way to start good patients. (I should also mention here that I consider the first month’s payment at start a form of down payment, not a no-money-down start).

What I will do instead is list what I consider to be some of the potential downsides of starting cases without a financial commitment, and why I don’t think that, for the majority of you. it is necessary:

• Negative cash flow
• Attracting visitors for whom the word “free” is the primary decision driver to come in to see you – with a corresponding drop in the conversion rate
• For those that do start, an increased likelihood of collection problems
• Starting people who aren’t committed  to completing treatment (or paying you for your work) because they have incurred no financial risk

There are others. Given the risk factors, why do doctors offer a no-down-payment option? I see it as a price-driven gimmick that may generate foot traffic but does not address the issue of differentiating your value from lower-priced options. That is a much better approach to improving case acceptance than degrading the value of your services in the eyes of the public.

As I cover in my training courses, asking for a small down payment in the $500 to $800 range is not so much about getting some money up front as a way to qualify the commitment of the buyer. I describe this in Yes to Treatment as the Deadbeat Litmus Test: if the patient cannot afford to give you a modest down payment, why would you expect them to be able to afford monthly payments of $200-300? Part of the down payment requirement is to keep people who cannot afford your services from  taking on a debt that they cannot handle – and one that they can and will assume, at your expense, if no up-front money is required.

The bottom line? I don’t think that a no-down-payment option is usually necessary, because most people who can afford to pay you for your services (read: qualified) are not going to care whether or not you ask for a modest $500 -800 to get started. If they do, you are likely to be better off not taking them on as a patient.