Medical Factoring: A Smart Finance Solution

By: Troy I. Degarnham

Medical factoring companies do not offer an existing medical practice a loan. In fact, the opposite is true. The medical office is selling third party account receivable invoices to a medical factoring company. This allows the medical factoring company to provide immediate cash payment for the total of the invoices to the medical practice provider. Third party billings are insurance companies such as Blue Cross and other like insurance providers. The medical field is one area that is extremely slow in paying invoices and most medical insurance companies can take up to 120 days to pay an invoice. This causes any medical practice to suffer from serious cash flow issues. Medical factoring changes the face of this situation by taking on the burden of waiting for payment on the outstanding invoices.

The sale of medical third party invoices is a great alternative to create working capital immediately. The financial practice that medical factoring offers in financial gains and advantages are enormous. The cash flow that is being generated through the use of a medical factoring company is stable and reliable source. Most medical factoring companies do not set a pre-specified limit of funding. When limits are applied it is direct correlation with the amount of money owed by the third party account receivables. The working capital is immediately released to the medical office allowing finances to be available for purchasing new equipment or simply taking care of payroll responsibilities. Another enormous advantage that medical factoring companies offer the medical practice is that there is no collateral requires. Banks and other traditional lending institutions always require collateral against any loans that are given. This ties up the availability of collateral for expensive medical equipment or leasing contracts.

Many potential medical offices that seek the services of a medical factoring company tend to believe that the cost is inherently higher than it actually is. It is expensive when compared to alternative sources such as traditional banking institutions or lines of credit. It should be mentioned that if a medical office or practice has the ability to get a line of credit or a bank loan to help ease the financial difficulty associated with collecting receivables from third party insurance companies, that should be the first avenue to travel down. However, most medical offices do not qualify for bank assistance due to the length of time they have been in business.

Medical factoring companies generally offer cash advances of 75-85% on the gross total of invoices that are being factored. The other percentage is kept until the outstanding invoices are paid to the medical factoring company. Once it is paid, the factoring company will issue another payment for the balance minus the predetermined factoring fees.

Factoring of accounts receivables is a relatively new practice in the medical industry but it is growing at a phenomenal rate. It is the effective financial tool that can provide the working capital needed for medical practices to meet recurring expenses and equipment purchasing expenses that encourage business growth.

Health Insurance
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Health Insurance