Every startup orthodontist eventually gets the same pitch. Offer in-house financing, keep the interest, skip the merchant fee, and patients will love you for it.
I think in-house financing is probably the single worst financial decision a startup can make. Not because patients don’t pay. Most do. It’s because you end up being the bank at the exact moment your practice has the least cash.
This post covers why we push third-party financing as hard as we do, and then compares the two companies we’ve actually used at our practice: Cherry and HFD (Healthcare Finance Direct).
Why in-house financing hurts startups
Orthodontic receivables are out of control across the industry. A patient starts treatment, you do most of the work in the first few months, and the money trickles in over the next two years. On paper the practice looks great. In the bank account it doesn’t.
When you’re new, that gap is the whole game. Rent, payroll, your equipment loan and your build-out note are due every month whether the patient’s payment clears or not. Cash flow is king, and in-house financing hands it to your patients.
A few things that don’t show up in the sales pitch:
- You become the collections department. Someone on your team now chases late payments instead of starting new patients.
- Bad debt is real. Even a small percentage of patients who stop paying is money you already spent delivering treatment.
- It’s hard to undo. Once you have a year of contracts on the books, you’re living off that receivable for a long time.
- A lot of companies make money when you carry the loan. Software, servicing and payment platforms are often paid more when you finance in-house, so the advice you get isn’t always neutral.
Third-party financing flips that. The patient still gets a monthly payment. The financing company pays you up front, usually within a few business days, and they deal with the patient’s payments from there. You give up a merchant fee. In exchange, you get your cash now and you stop being a lender.
For a startup, I think that trade is almost always worth it.
Yes, third-party financing has a fee. So does in-house.
Third-party financing isn’t free. In our experience the merchant fee usually runs somewhere around 9% to 13%, depending on the company, the plan length and the patient’s credit.
But in-house financing has a fee too. It just doesn’t show up as one line on a statement:
- Staff time following up with patients who are behind
- Updating expired and declined credit cards, month after month
- The cost of past-due accounts, and the ones you never collect
- The money conversations your team has to have with patients, which you never have with third-party financing
- Credit card processing fees on every monthly payment you collect yourself
- Messier transfers when a patient moves, and less room to move a past-due insurance balance over to the patient’s side
Add those up and it isn’t close. For our practice, moving to third-party financing has been a no-brainer, and honestly one of the best decisions we’ve made.
Cherry vs. HFD: the short version
We used Cherry for a long time, and they’re great. Nothing wrong with them. A few months ago we started using HFD, and the biggest difference so far is simple: in our office, everyone gets approved.
That’s the real decision between the two. Cherry is built around a smooth experience for patients who qualify. HFD is built around getting nearly every patient to yes.
Side-by-side comparison
| HFD (Healthcare Finance Direct) | Cherry | |
|---|---|---|
| Approval | HFD says it approves 99%+ of applicants. Declines are mostly open bankruptcy or identity issues. | Cherry says up to 90% of applicants are approved. |
| Credit check | Soft pull, no hard credit check | Soft check to see offers |
| Maximum amount | Up to $35,000 | Up to $50,000 |
| Plan lengths | Up to 84 months | 1 to 60 months |
| Down payment | $0 down available | Often a first payment due at signing |
| Interest for patients | 0% options depending on the patient and your program. Higher-risk plans can carry high APRs. | 0% to 35.99% APR, depending on the patient |
| When the practice is paid | 2 to 3 business days | 2 to 3 business days |
| Who carries the risk | HFD offers non-recourse plans where HFD carries the risk. Recourse options also exist, so confirm which one you’re on. | Cherry carries default risk and handles collections |
| Merchant fee | Per funded plan, quoted to your practice | Per transaction, quoted to your practice |
| HSA/FSA cards | Yes, for down payments and monthly payments | Not in our experience |
| Software and onboarding | Works, but the interface needs work. Onboarding took more effort. | Noticeably better interface. Onboarding was much easier. |
| Best for | Getting nearly every patient approved | A clean patient experience for well-qualified patients |
What we’ve seen with Cherry
Cherry is easy. Patients apply from their phone in about a minute, the soft credit check doesn’t scare anyone, and the 0% offers are easy to explain at the chair. Our team liked it and our patients liked it.
The limit is approval. Cherry approves a lot of people, but not everyone, and in orthodontics the patients who don’t qualify are often the ones who need a payment plan the most. When a parent gets declined at the chair, you’re right back to deciding whether to finance them yourself.
What we’ve seen with HFD
HFD’s biggest strength is approval. In our office, everyone we’ve run has been approved. HFD only declines in a few situations, like an active bankruptcy or a match on a government watchlist. That matters more than it sounds. It means the payment conversation stops being a credit conversation, and it means we’re not tempted to carry the patient in-house when another lender says no.
HFD sorts patients into tiers based on credit, and the terms change with the tier. That’s the trade-off. Patients with weaker credit can see higher interest rates on longer plans. We’re careful with that. Our rule at the chair is to offer 0% whenever we can and to keep the monthly payment reasonable, rather than stretching a plan just to make a number work.
The other big one is HSA and FSA cards. With HFD, patients can use their HSA or FSA card for the down payment and the monthly payments. That’s a big deal for a lot of families. In our experience you can’t do that with Cherry, so for patients who want to use those funds, HFD wins.
One more thing to check: HFD has more than one program. Some plans are non-recourse, where HFD takes the risk if a patient stops paying, and some aren’t. Know which one you signed up for before you assume the risk is gone.
Where Cherry is clearly better
To be fair to Cherry, their software is significantly better. The website, the patient interface and the provider dashboard are all cleaner and easier to use. HFD needs to work on theirs.
Onboarding was also a lot easier with Cherry. Getting HFD set up took more back and forth. Once you’re up and running, though, the day-to-day process is more or less the same: send the application, the patient picks a plan, and you’re funded in a few days.
Which one should you use?
If most of your patients have strong credit and you want the smoothest software and the easiest setup, Cherry is a very good choice.
If you see a lot of patients with thin or damaged credit, families who want to use HSA or FSA funds, or you’re a startup that can’t afford to carry anyone in-house, HFD is hard to beat.
You also don’t have to pick just one. Some practices run both. What matters is that every patient who wants to start has a way to start that doesn’t involve you becoming their bank.
Questions to ask either company
- What is my merchant fee at my expected monthly volume, by plan length and patient tier?
- Is this plan recourse or non-recourse? If a patient stops paying, does any of that come back to me?
- How fast am I funded, and what happens with refunds if treatment is discontinued?
- What are the patient’s late fees and APR at each tier?
- Can my team see application status and funding in one place?
The bottom line
Financing isn’t really about financing. It’s about case acceptance and cash flow. Third-party financing lets you say yes to more patients without putting your own cash at risk, and when you’re opening a practice, that’s the difference between growing and just getting by.
If you’re planning a startup and want to talk through your financing setup, that’s exactly the kind of decision we help with in our orthodontic startup consulting.
Sources: HFD dental financing, Cherry dental financing, Cherry: HFD vs Cherry, Real Dental Costs: Cherry, Med Spa Vendor Hub: HFD.