Though medical factoring is not new, this alternative financing process is currently attracting many small business owners. There are advantages to this type of financing in healthcare and it’s helpful to be knowledgeable about the process. By learning about factoring and understanding the benefits, you can decide if factoring would be advantageous to your business.

Understanding Factoring

Factoring is a type of financing where an outside firm purchases the account receivables of the medical clinic. The medical factoring firm offers a cash advance to the clinic in exchange for taking the account receivables. The cash advance offered to the medical clinic is typically a significant amount of the outstanding invoice or claim. The medical factoring firm then assumes the responsibility for collecting payment from the customer or insurance company. There are many types of account receivable items that are accepted under invoice factoring.

Benefits of Factoring

There are at least two major benefits of medical factoring: removing the burden of collection from small business owners and immediate cash flow.

First, current medical claims are taking as long as 90 days to settle. This creates an enormous burden on small business owners to follow through on countless claims and invoices. By removing the responsibility from the business owner to an outside company, healthcare providers are able to focus on serving customers.

Second, with claim settlement typically averaging around 90 days, small business owners are left to operate without immediate payment. This can be a huge burden for clinics and businesses that are struggling to survive. By receiving an almost immediate cash advance, small businesses can focus on growing and expanding instead of account receivables.

Using Factoring

There are many businesses that can benefit from medical factoring. Some of these businesses include:

  • Pharmacies
  • Hospitals
  • Medical staffing companies
  • Medical supply businesses
  • Nursing homes
  • Any healthcare company that bills insurance programs

One of the best ways to decide if medical factoring is a good fit for your company is to interview several medical factoring firms. Each firm will have different specialties and capabilities. It requires work on your part to find out if medical factoring, including which firm, is a good fit for your company. If you’re a new or small business struggling to obtain cash flow and keep up with account receivables, medical factoring could be a good decision.

By understanding medical factoring and giving due diligence to researching various medical factoring firms, you’ll be able to decide if medical factoring is right for you.