The healthcare industry is known for its obsolete billing and payment system. When you factor in things like insurance and bureaucracies, medical bills may take weeks or months before they are paid. While medical companies often experience slow-paying customers, if they have too many unpaid invoices, it can harm their cash flow and growth. This is where medical factoring can help.
Medical factoring is a type of financing directed at healthcare companies that are struggling with cash flow because of outstanding invoices. These invoices typically have terms of 30 to 120 days. Medical factoring allows healthcare companies to continue saving lives without being worried about cash flow.
Medical factoring can be used by two types of medical companies:
• Vendors: medical staffing, transportation, equipment, transcription services
• Providers: dentists, physicians
Providers typically bill third-party payers such as Medicaid, Medicare, and private insurance companies.
Medical factoring works for both vendors and providers because they are known for working with creditworthy clients.
How Does Medical Factoring Work?
In order to obtain this type of financing, the medical company must work with a factoring company. While there are lots of medical factoring companies in the industry, they all work basically the same way:
Find a Factor
Once an invoice with a net term of 30 to 120 days has been issued, the medical company can start looking for a factoring company. When they find one, the factoring company will review the business and invoices. They may also request more information including credit checks on clients and patients.
Once this review is complete, the medical company will sign an agreement with the factoring company that details fees, payment plans, and the initial max credit line.
Assign the Factor
Once the agreement has been signed, the factor will advance 80% to 90% of the submitted invoices’ value. In most cases, the medical company will receive the funds in 3 business days.
This will then transfer the responsibility of bill collections to the factoring company. The factoring company contacts clients with information on making payments.
Client Pays Factor
Once the client pays the invoice, the factoring company will deduct their fee and forward the remaining balance to the medical company.
Medical Receivables Financing
An alternative to medical factoring is medical receivables financing. This is similar to medical factoring because it increases cash flow by offering advances on outstanding invoices. This option also involves a third party to coordinate financing.
The primary differences are:
• Credit check usually isn’t necessary because financing companies have other ways to determine the reliability of your customers
• Financing company does not control/manage collections
• Financing company advances 100% of the funds
• Approval time is shorter- typically a few hours to a few days
• Process is entirely electronic
• No hidden fees/unexpected costs
Medical factoring and medical receivables financing are both viable options for medical companies with slow-paying clients. If you need more information about either of these options, contact WCK Financial today!