An Alternative Financing Option
For Healthcare Professionals
commercial lines of
credit and business loans get harder and harder to qualify for, medical
factoring can alleviate cash flow problems for medical practices and
all types of healthcare businesses.
Despite its resilience to economic turbulence and excellent growth
prospects, the healthcare industry is faced with more financial
challenges than ever before. In the past, cash flow was reasonably easy
to manage for healthcare professionals, medical facilities, and
suppliers. Today, though, Medicare, Medicaid and private
insurance companies have strict reimbursement guidelines and onerous
billing and documentation requirements that result in both fewer
dollars and a longer wait to receive them.
This can create a financial “perfect storm” for many medical providers,
who get paid less and wait longer for their money, while at the same
time, must deal with increasing salaries, benefits, and other operating
expenses. Under these circumstances, the provider business’s long-term
viability is threatened and pursuing new opportunities for growth is
next to impossible. Even a physician with a relatively small practice
might have $1 million tied up in receivables.
think about factoring
until you've read this ...
It could save you many thousands of dollars and a lot of
When confronting a cash flow crisis, the first thing most medical
professionals do is turn to banks or commercial lenders for loans. On
the surface, a business loan or line of credit may help in the
short-run, but it is not an optimal business financing solution since
neither will solve the main problem permanently. Loans are best suited
for large fixed capital purchases, but not for covering short-term,
recurring business expenses. Credit lines are somewhat better, however,
they have fixed terms and credit limits, they cannot provide the
assurance of an unlimited, renewable source of business capital. When
the term of credit line ends or the credit limit is reached, the lender
may choose not to renew it or increase the credit limit. This is the
unfortunate situation many healthcare professionals find
themselves in today.
The ideal medical financing solution would be flexible enough to grow
with the healthcare business without re-applying or pleading to a
banker for credit limit increases. It would provide a steady, reliable
source of working capital financing for bothe current operations and
Medical factoring is just such a solution. It is an area of receivables
factoring that deals exclusively with invoices that are “medical” in
nature. Because of the expertise required to manage the claims process
and the fact that so many healthcare receivables are ultimately reduced
(if not denied altogether) by insurance providers, factoring
medical receivables presents significant challenges to factoring
companies that all but
require them to specialize in it. In fact, many do nothing else.
Who Can Use Medical Factoring?
For hundreds of years, many industries have befitted enormously from
accounts receivable financing
but most medical service providers are unaware of its existence as one
of the most powerful and flexible business financing tools available.
Just about any healthcare provider can benefit, including:
And the benefits of factoring medical receivables are not unlike those
enjoyed by businesses in other industries:
- Faster payment
- More consistent cash flow
- Outsourced accounting and collection
- Increased percentage of billings collected
- Debt-free working capital financing
Medical Financing That Grows Automatically
For a medical practice, receivables factoring presents an excellent
financing alternative to loans. It offers a practice flexible and
consistent financing tied directly to its insurance claims: As more
claims are filed, the amount of available financing goes up
accordingly. In a growing practice, having a reliable and scalable cash
flow ensures that there will always be enough liquid business capital
to keep up with expenses.
Similarly, medical supply companies can enjoy quick, predictable
business financing tied directly to the volume of sales. As sales grow,
the amount of financing grows to automatically provide the working
capital financing needed to operate and grow the business.
Medical receivable factoring is especially well suited for
smaller medical offices. Since the factoring company handles
much of the tedious administrative work involved in claims processing
and collections, office staffing and overhead expenses can be kept at a
minimum, while allowing you to focus on delivering the best medical
If your small practice has slow cash flow but good growth
then receivables factoring may be the tool to help you finance your
Although most factoring companies have minimums, many will finance an
office that is billing as little as $50,000 per month.
How Medical Factoring Works
For any healthcare company that depends on third-party payors, medical
factoring accelerates those payments. Within days – instead of weeks –
of the initial billing, most of the billed amount is deposited directly
into the business bank account, dramatically shortening the collection
cycle and eliminating cash flow headaches. Receivables factoring is
loan – it has no impact on the business’s balance sheet, no credit or
stringent financial requirements, and no arbitrary limits. You can
factor as much of the billing as your business generates, making it the
ideal financing tool for growth.
Typically, setting up a factoring program will take a
weeks at most. All factoring companies will want to insure that their
clients’ practices are stable and that the third-party payors are
reliable. Once the factoring program is established, however, medical
financing is continuous and predictable. Claims are typically funded
within 48 hours after being submitted to the medical factoring company.
The process is really
- Your practice submits periodic billings to insurance
companies/Medicare/Medicaid (Your medical factoring company may do this
for you.) with copies forwarded to your factor.
- Up to 85% of net collectables (the “advance”) are deposited
business bank account within 48 hours. The balance is is held in
reserve to settle billing discrepancies.
- Once the factoring company is paid, it collects
fee and remits the balance of the billings to you.
Although medical factoring
The fee for medical factoring will vary with the types
and sizes of the claims the practice generates.
remains a relatively small portion of
overall factoring activity, interest in it is increasing throughout the
healthcare industry. With a potential funding pool in the hundreds of
billions of dollars, medical receivable factoring is likely to become
more common in the near future, as the benefits of this form of medical
financing become more widely known.
As both a short-term remedy for shortfalls in working capital financing
and a long-term solution for medical financing and patient accounting
support, medical factoring is tool that deserves careful
consideration by most healthcare businesses.