Medical Factoring:
An Alternative Financing Option
For Healthcare Professionals

As 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.

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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, since 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 future growth.

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 financingfactoring accounts receivable, in particular – 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:

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  • Physicians (general practitioners and specialists)
  • Hospitals and medical centers
  • Medical staffing services
  • Outpatient facilities and clinics
  • Dialysis facilities
  • Medical labs
  • Physical therapy groups and clinics
  • Durable medical equipment providers
  • Home healthcare providers
  • Rehabilitation centers
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
  • Building business credit

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 care possible.

If your small practice has slow cash flow but good growth prospects, then receivables factoring may be the tool to help you finance your growth. 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 never a 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 couple of 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 quite simple:

  • 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 in your 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 the factoring fee and remits the balance of the billings to you.

The fee for medical factoring will vary with the types and sizes of the claims the practice generates.

Although medical factoring 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.

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