Factoring Blog

Understanding Medical Receivables Factoring

doctor getting medical receivables factoring

Most people think that companies in the healthcare industry are very well paid. The reality is that most healthcare facilities – doctor offices, treatment centers, nursing homes, DME’s and others – have very difficult cash flows. They have a number of upfront expenses that need to be covered. However, they get their revenues by submitting claims to insurance companies, Medicare and Medicaid, which can take up to 90 days to pay. This can be the source of serious financial problems, especially for healthcare companies that are not well capitalized.

Accelerate your cash flow

One simple way to solve this problem is to finance your slow paying medical receivables. This can improve your cash flow and provide the working capital your healthcare company needs to operate – and grow. It works by partnering with a medical receivables factoring company, that acts as a financial intermediary for the transaction. The advance funds for your claims, and then settle when insurance companies pay.

Most factoring transactions work as follows:

  1. You sell approved claims to the finance company
  2. The finance company advances up to 75% (this amount varies) of the claim value as an initial advance
  3. Once the claim is paid in full, the factoring company remits the closing advance of 25%, less the funding fee

What determines the advance

Most medical invoices list two amounts for services. The first amount is the customary charge for the service. The second amount for what they actually expect the insurance company to pay. This second amount is known in the industry as the net collectable, and the advance is usually 75% of the net collectable amount.

Who can qualify?

To qualify, a healthcare company needs to submit claims to medical insurance plans (HMO’s, PPO’s, etc) and to Medicare/Medicaid. It must also have good billing practices and must have a track record of getting paid – albeit slowly. Additionally, your healthcare business must not have its receivables encumbered by a lien.

Usually, the it takes about two weeks to get the initial funding. Subsequent funding happens regularly after that. This makes medical receivables factoring an effective solution for healthcare companies with cash flow problems who need quick funding.

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