Medical Receivables Factoring 101

The medical industry can have fluctuations in patient volume and revenue. During these periods, healthcare facilities, clinics, nursing homes, and individual practices can rely on medical receivables factoring, which is also called medical factoring. Medical factoring is when a medical facility allows a financial institution to purchase accounts receivables invoices at a discounted rate. In this way, the healthcare facility can receive instant capital based on funds that they will receive. The “factoring” part of the word refers to the sale of the invoices to the financial institutions or “factors.” The healthcare facility is termed a “seller” and the individual organizations like insurance companies that owe the medical facility charges for services rendered are called the “account debtors.”


Medical Receivables Factoring


The Benefits of Medical Factoring

Many medical facilities are reluctant to get loans that charge high interest rates to cover their costs during a slow business cycle. Instead, healthcare facilities prefer to utilize medical receivables factoring because the healthcare professionals receive capital in exchange for their assets. The major qualifying factor to obtain the factoring-derived capital is not based on the credit score or history of the hospital or practice. Instead, the accounts receivable invoices become the critical elements that maintain the credit. This allows practices that have been only recently established or practices that do not have a good credit history to obtain the resources that it needs to maintain consistent cash flow. In addition to not being burdened with high interest rate loans, the burden and time required to collect the invoices are lifted from the practice and transferred to the financial institution offering the medical factoring. Thus, personnel at a healthcare practice can use valuable time to grow the business and focus on providing exceptional care.


How to Obtain Medical Factoring

The healthcare practice must first identify one of the many financial institutions that provide medical receivables factoring. It is important that the practice carefully reviews the paperwork to understand the overall factoring process. The hospital or clinic should clearly understand the amount of payments that they will receive from their invoices submitted to the factor. The healthcare facility should research among multiple factors to obtain the best agreement that fits their needs. In general, after the agreement is made, the factor will ask the facility to generate invoices with the factor’s address and information so that the factor can obtain authority over receiving the funds. The factor will verify that the healthcare services were provided, that no additional contractual services need to be provided to complete the invoice, and that the account debtors are required to pay the full invoice amount with no discounts or credits. After verification, there is the advance of the money from the factor. Factors will keep in close communication with the healthcare facility throughout the process. In general, medical receivables factoring is an efficient way for healthcare facilities to quickly and securely receive incoming capital to manage business.

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