There is a lot of misinformation floating around the medical industry about how factoring works and about how it could be advantageous for your practice. There are actually two kinds of accounts receivable financing available for medical practices, those being healthcare factoring and medical receivables factoring. Here is an overview about how both of these processes work.
Medical Receivables Factoring
For the most part, any consumer will generally pay for products they need directly. However, in some industries such as the medical industry, it happens that the consumer may not directly submit payment for products or services. In these cases, third-party companies will become involved and pay the provider for those products and services. Some good examples of this are Medicare, Medicaid, and many commercial insurance carriers. It’s typical in this kind of arrangement for the collection time on these types of accounts receivable to be somewhere between 90 and 180 days. Once the healthcare facility has been reimbursed by insurance carriers for their services, the third-party lender is then paid off for having purchased whatever supplies or other goods were originally involved.
In this form of medical practice financing, a third party will purchase the invoices which a hospital or medical practice would issue to customers. This third-party will purchase invoices at a rate somewhere around 80% of their face value, and then the third party will collect on those invoices. Once the amounts have been received by the third-party, they would then remit the other 20% to the healthcare facility after having deducted their factoring fee. This allows the medical practice to receive cash immediately after invoicing, without having to wait for the patient or client to pay the invoice.
Is Factoring Right for Your Company?
For many small businesses, factoring can provide the kind of upfront cash that is critical for maintaining positive cash flow. Contact us at Whitefish Funding if you’d like to find out more about factoring and how it can help your small business.