Everything You Need to Know About Medical Factoring
Small business owners in healthcare are turning to medical financing as they look for viable alternative funding solutions. With medical factoring, you do not take on more debt as if you chose a loan, but rather receive a cash payout on open invoices or insurance claims. This gives your company a quick injection of capital without tying up your assets or requiring a strong credit score. A factoring company will purchase your open invoice, usually for a partial amount between 70% to 90% and advance you the money. They settle the outstanding bill with client, refund any remaining money to your company (minus their fee), and it’s on to the next account.
Using a cash advance can be better than a business loan because there are fewer difficulties in qualifying for the financing, the lending terms are more attractive, the money is received more quickly and it’s a process that can occur more than once. With factoring, the lending company looks at the credit of your account holders before approving the invoice purchase. Your company’s billing practice will also be scrutinized before a contract is drafted between your company and the factor.
With medical financing, the receivable items can be slightly different from other industries. In addition to valid invoices, medical factoring companies will also accept insurance claims for health care services rendered. They may approve claims that have been made to Medicare, Medicaid or other state agencies and insurance companies. Rather than your patients settling the accounts with you, the collection process falls with the factoring firm. They pursue customer payments and debt collection. There are conditions where your company may be held responsible if an invoice is left unpaid, and this is called recourse factoring.
Medical financing brings immediate cash flow into your company. If you need to purchase medical equipment or add employees to handle rapid growth in your practice, these funds can be a lifesaver. You don’t have to wait for bank approval or be weighed down with substantial loan obligations over a long period of time. The factoring process lets you choose which accounts to factor, as well as how often you need to factor. This cash system gives you access the money you need, when you need it. You are also alleviated of the burden of invoice collections and processing, freeing your staff to work on projects that will grow your business.
If your business can’t afford to wait 30-90 days for invoice or claims payment, consider using medical financing to boost your cash flow.