Medical Factoring Financing: Everything You Need to Know

Financial services aren’t uncommon in the healthcare business, and one of the biggest obstacles that most companies face is the length of time it usually takes to get paid. While it may certainly be understandable for delays to happen when it comes to payments regarding medical bills and claims, these unpaid invoices can easily cause significant cash flow problems for the companies and professionals in this field and prevent them from operating efficiently. This affects companies both large and small, and can potentially be disastrous for a startup business.

To this end, a viable option to pursue is what is known as medical factoring financing. It essentially serves as a financial solution for those in the healthcare industry that are struggling to make ends meet due to payment delays. Despite this industry being amongst one of the most lucrative, it is by no means cheap to operate within the healthcare sector, and medical factoring offers various benefits. If your business requires the cash boost that medical factoring can offer, you may want to get it now to help improve your cash flow and alleviate any financial issues; costs for rent, utilities, payroll and equipment can easily rack up and spiral out of control otherwise.

Medical factoring is an advantage

In any industry, a consistent means of cash flow is imperative in order to not just grow and develop, but more importantly to survive. The healthcare business is no different in this regard. It demands not only a high-level of expertise from its professionals and specialists, but the right tools and equipment to do the job. Consultants and lawyers are not just a mere luxury but also an absolute necessity to have, and an investment towards marketing and sales is also needed to stand out from the highly competitive market.

All of these are expenses that need to be paid. Even more so, they can be quite expensive. This is partly the reason why many startup businesses and even established companies still struggle. In this industry, unexpected losses from the unpredictability of the economy, reforms in health care and a multitude of other factors can all be quite overwhelming and delays in payment and unpaid bills can have dire consequences which will undoubtedly affect the growth and sustainability of a small business.   

Medical factoring is a significantly important service that any business in the healthcare industry can ill-afford not to take advantage of. It alleviates cash flow issues through advancing the invoice value to the company, and can go a long way to mitigating the financial risks in the business.

The way medical factoring works

Despite the many medical factoring companies available with their respective systems and operations, they all commonly use familiar business models that aren’t too dissimilar from each other. It usually starts with the healthcare company applying to a factor that will review and assess the business at hand. Before any agreements are made regarding the invoices, the assessment usually entails careful customer or patient review and includes a mandatory credit check. Once everything is approved, the fees, payment plans, and other pertinent details will be discussed.

The factor will then proceed and give the agreed advance, commonly known as the advance rate, to the healthcare company. Depending on all the elements that have been considered, the rate is usually around 80% or 90% percent the value of the invoice. In this way, the responsibility of collections is transferred to the factor, and they themselves will get in touch with the company’s clients in order to discuss the details pertaining to the payment.

The reverse amount

As is often the case with any kind of service rendered, there are fees associated with it too. Once the aforementioned clients have made the necessary payments, the remaining balance minus the fees associated with the compensation for the factoring company’s services are sent back to the company in the form of the reverse amount. Deductions according to the terms of the agreement between the company and the factor will be deducted from the remittance.

Are there alternatives to medical factoring?

Medical factoring may be the most common financial option for those in the healthcare industry, but it isn’t necessarily the only one. Another similar means of acquiring financial services is medical receivables financing. It exists to rectify and remedy any issues in cash flow and generally involves third-party coordination, but it also has a few notable differences from medical factoring.

For starters, the mandatory credit checks of medical factoring aren’t always necessary in lieu of other tools that can properly determine the actual reliability of a customer. This can save much needed time as it not only allows approval for financing to be attained in a short amount of time but also enables the third party to give the complete advance ahead of time too.

But perhaps the most notable and significant difference that medical receivable financing has over factoring is the fact that there are rarely any hidden and unexpected fees attached to the terms of the agreement. This doesn’t necessarily mean that you don’t need to be thorough when discussing the details pertaining to the agreement, but it can certainly give comfort and relief since additional expenditure is kept low.

Finding the right company for you

It can be just a little tricky to find the right company that can provide the financial services that are needed by your business. While the business model remains similar, each and every company will have their own specialties. Some may be far more accustomed to partnering with larger enterprises, while others yield far more success with smaller businesses. The best thing to do is try to get as much input from as many providers as you can before making a decision.

Even when faced with huge financial challenges and obstacles, it isn’t impossible to overcome them. No matter how overwhelming everything may be, there’s always a solution. In this case, it is medical factoring or receivables financing.

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