Medical Factoring: Financing without Business Loans

Medical Factoring

Most healthcare professionals are used to waiting 30, 60, 90 or even 120 days to collect a payment on a medical insurance claim. Trying to collect funds from a PPO or an HMO can be an exercise in patience since the industry has notoriously long payment cycles. This makes managing any healthcare business that invoices insurance companies very challenging. While revenues may flow in slowly, expenses have to be paid regularly. Depending on the type of healthcare business you have, you may need to pay employees, rent, suppliers and others. This creates a situation where revenues flow in slowly, but expenses flow out quickly.

The only way to manage a business that has very slow revenues but quick expenses is to have a cash reserve that can used to cover the temporary shortfalls. The problem is that building a cash reserve - especially when your insurance claims can take up to 4 months to pay - is very difficult. But unless you deal with this problem, you will not be able to grow your business. Or worse, your medical business may run into serious cash flow problems.

Doctor offices have a slight advantage in this area since many MD's can qualify for signature loans and similar products from their local banks. They can use these resources to finance their businesses and improve their working capital - at least until the company grows enough to become self sustainable. For everyone else, getting business financing will be considerably more difficult. Most banks will only provide you with a loan - or line of credit - if you can show substantial assets and provide well documented financial statements. This can leave most small healthcare providers our of the running.

But there is one important point. You would not have cash flow problems if you could get your claims paid quickly. And there is one way to accomplish that without trying to get insurance companies to pay sooner.

There is another option

If your own a healthcare business such as a medical office, nursing home, medical equipment provider, laboratory or imaging and testing center, there is another alternative. You can finance your medical receivables. This can provide you with a number of the benefits of getting a quick payment and can definitely improve your cash flow. Imagine if you worked with patients and insurance companies that paid quickly. How would that improve your business? How quickly could you grow it?

Here is how it works

To implement this solution you have to partner with a medical factoring company, who will act as a financial intermediary between you and the insurance companies. They will finance your insurance claims and settle transactions once the insurance companies actually pay the claim. Transactions are often structured by financing the claim in two installments.

The first installment is called the advance and is based on the amount of money that the insurance company will pay you (net collectable). The advance rate averages 70% of the claim and is provided as soon as the claims are submitted and processed. The remaining 30%, less the finance fee, is rebated once the claim is actually paid by the insurance company. Transactions often follow this structure:

  1. You submit a batch of claims to insurance company (and finance company)
  2. The finance company advances 70% - usually by wire
  3. The claims are paid - 30 to 120 days later
  4. The finance company rebates the remaining 30%, less fees

Qualification criteria

Qualifying for this solution is relatively easier than qualifying for a business loan. Most medical factoring companies are flexible and used to working with small, and growing, businesses. The most important requirement is that your insurance carriers must have a good payment track record. It's ok if they pay slowly, as long as they pay. Your healthcare company must have a good billing system, which will be reviewed by the finance company. Lastly, your company should be free of major legal or taxation problems.

Get a medical factoring quote. Questions? Call (866) 730 1922

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