If your business is in the healthcare industry, you face unique challenges when collecting payments from your patients or clients. Managing your cash flow and staying on top of your finances can be particularly frustrating when people do not pay invoices on time. You experience further complications when dealing with insurance companies and government entities.
Medical financing such as health care factoring or third-party medical receivables factoring can help keep your business operating smoothly. Understand the differences between the two types to know which method is best for you.
Health Care Factoring
This financing strategy typically involves businesses with service-oriented operations in the health care industry that bill medical facilities directly. Some examples include:
- Medical billing services
- Transcription services
- Supply companies
- Temporary nurse firms
- Staffing agencies
Factoring refers to selling your invoices to a finance company called a factor. These businesses buy your unpaid invoices at a discounted rate, giving you immediate access to cash. Then, the company collects payment from your clients. Getting this financing is easier than obtaining a bank loan and helps you stay on your feet when cash flow is low. Also, it releases you from the hassle of dealing with the collections and credit management process.
Third-Party Medical Receivables Factoring
Another option for medical financing is medical receivables factoring. Medical bills typically go through a government program or insurance company before getting to the patients. This process can take many months. Errors in the billing or coding can delay collections further. Third-party medical receivables factoring offers immediate funds for your company while you are waiting for Medicare, Medicaid, or insurance reimbursements.
With this finance method, you submit bills to third-party payers like insurance companies. Providers then send copies of the invoices to the factoring company. The factor purchases the invoices at around 80% of the collectible value, using the 20% reserve in case clients do not pay their bills.
The factoring company deposits the advance funds into your account within two to six days. Once customers pay their bills, you receive the reserve amount minus the company’s factoring fee. This method offers a way to stabilize cash flow when waiting for third-party companies to pay.
If your business provides medical services or equipment, medical financing can help you manage your cash flow and meet daily working expenses. Factoring enables you to forecast, plan and budget effectively. Consider how your company operates to select the best type of financing for you.