Factoring Financing Articles

Owning a healthcare business or practice can be very profitable and very challenging at the same time. Having to wait up to 90 days to get paid by insurance companies, HMOs and Medicare/Medicaid can wreak havoc on your company’s cash flow. This problem can easily be compounded if you have regular periodic expenses, such as rent and payroll, which must be met.

Going to the bank may be of some help, especially if you are a doctor, are willing to personally guarantee a loan and own a medical office. If you run any other type of healthcare business that bills insurance or Medicare you may be out of luck. Banks almost always require significant collateral and three years of audited financials. To make things more complicated, most bank financing has maximum limits. Much like a credit card maximum, once you reach it, that is the end of the line. But what if your business is growing?

Medical factoring allows you to finance your business by using your slow paying insurance claims as collateral. In effect it reduces the time it takes you to get paid from up to 90 days down to a few days. You can use the financing to pay rent, meet payroll and pay suppliers. You can also use it to grow your business.

As opposed to other financing tools, factoring has no arbitrary maximum limits. Your maximum amount of financing is solely determined by how much you invoice. The more you invoice, the more you can finance. Factoring enables you to grow your business and eliminates having to wait to get paid by insurance companies and by Medicare/Medicaid.

Medical factoring is easy to qualify for. It works equally well for new and for established healthcare companies. If you cannot afford to wait up to 90 days to get paid by your insurance carriers, you must consider invoice factoring as a solution.

As commercial lines of credit and business loans get harder and harder to qualify for, many medium and small medical practices and healthcare businesses are turning to medical factoring to help alleviate their slow cash flow.

Although many medical practices can still qualify for a business loan or line of credit, many are finding that traditional banking products don’t always solve their cash flow concerns in the long term. Why? Well, small business loans have to be paid within a few years and lines of credit have fixed maximum limits. Basically, neither product is very flexible and both are hard to get, unless you run a medium sized medical practice.

Medical factoring presents an interesting financing alternative. It provides you with financing that is tied to your insurance claims. If you file more claims this month than last month, your financing goes up accordingly. It provides you with predictable cash flow, ensuring that you are able to meet your office expenses. You’ll have predictable money to pay rent, meet payroll and invest in growth.

And, medical receivables factoring is ideal for small medical offices. Although most factoring companies have minimums, many will finance an office that is billing as little as $50,000 (net) per month.

Medical factoring works as follows:

1. You submit your insurance and Medicare/Medicaid claims as usual. You send a copy to the factoring company
2. The factoring company advances you 70% to 85% of your net collectibles (the non advanced part works as a reserve to cover disputes/etc.). You can use the funds as you see fit
3. Once the medical factoring company gets paid, the transaction is settled.

Setting up a factoring account can take a couple of weeks, mostly because the medical factoring company will need to perform their due diligence and audits. However, once the account is set up, the financing is continuous. You can usually get your claims funded within 24 hours of submitting them to the factoring company.

If your small medical practice has slow cash flow but good growth prospects, then invoice factoring may be the tool to help you finance your growth.

Doctors and professionals that bill insurance, HMO’s or Medicare/Medicaid know how the payment cycle of the industry works. Basically, hurry up and wait, is the call of the day. It is not uncommon for a medical professional to send a bill to an insurance company and have to wait 30, 90 or even 120 days before they get paid. In the meantime, the office needs to pay employees and suppliers.

Unless the medical office has a large cash reserve, it is likely to run into problems. Sooner or later, it may run out of cash. One alternative is to go to the bank to obtain a business loan or similar product. That works, sometimes. But banks can be hard to work with and seldom increase loans after giving them. What happens if your medical office keeps growing and needs more cash?

Medical receivables factoring is usually a better alternative. Medical factoring eliminates the payment wait, getting your insurance claims paid in as little as 2 days. This streamlines cash flow, allowing the medical office to easily meet its obligations.

Factoring receivables is simple and works as follows:

1. The medical office sends claims to an insurance company
2. A copy of the claims is sent to the factoring company for financing
3. The factoring company advances between 60% and 85% of the claims
4. Once the claims are paid, the transaction is settled

Invoice factoring is relatively easy to obtain and quick to set up. The biggest requirement is that the medical office be well run and that it bill private insurance companies or Medicare/Medicaid. Factoring lines can be set up in as little as 5 days. The cost of factoring varies and will be determined by a number of parameters such as the types of claims you handle and the size of the claims.

If you own a medical office that is growing, sooner or later you’ll run into cash flow issues. Unfortunately, every business that is growing – regardless of industry – runs into them.

When faced with cash flow problems, most medical offices try to get a business loan or a line of credit. Although business loans can work well, they are not a panacea. For starters, they are not easy to get. But more importantly, they have set maximums. This means that you may outgrow the business loan if your business keeps growing quickly. This is a very important point because once you have outgrown a loan, it is very difficult to try and get a new one. The first one must be paid off.

A better option may be medical factoring. Medical factoring is a financing tool designed to help medical offices. It eliminates the 60 to 90 days it takes to get claims paid and accelerates payment time to between 2 to 7 days. This can be a huge advantage if slow paying claims have put you at risk of:

1. Missing payroll
2. Missing rent or other payments
3. Delaying important hiring decisions

Medical factoring can provide you with:
1. Funds to meet payroll
2. Funds to pay rent and vendors
3. Financing based on your claims. The more you bill – the more financing you get

As opposed to common business loans, medical factoring is easy to qualify for. The main requirement is that your office be up to date in taxes and be free of any tax or commercial liens. And it’s also quick to set up. It usually takes about 10 days to set up an account for initial funding, but all subsequent fundings happen within 24 hours of submitting the request. The process is very simple:

1. You submit claims to insurance companies and send a copy to the factoring company
2. The factoring company advances between 70% – 85% of your net expected collections
3. You get immediate funds. The factoring company waits to get paid
4. Once the factoring company is paid, the transaction is settled.

Because of this, medical factoring is an ideal tool to streamline your medical office’s cash flow.

Hurry up and wait. If you own a pharmacy that is billing private insurance companies, HMO’s and Medicare/Medicaid you know the meaning of that phrase very well. Hurry up and wait is what happens after you submit client claims for payment. You wait 30, 60 and sometimes 90 days before you get paid.

In the meantime, you still need to pay rent, meet payroll and pay your suppliers. Paying them on time is critical for the success of your business.

So, what can you do if you cannot afford to wait to get paid? Going to the bank won’t help you unless you have been in business three years, have great credit, plenty of assets and can provide three years of audited financials. Without them, banks will seldom lend you a dime.

But there is a financing tool that can provide you with the financing you need. Not only that, as your sales increase, so does your financing. This tool will allow you to have the funds to pay rent, meet payroll and pay your suppliers. It eliminates the hurry up and wait game that insurance companies play.

It is called medical factoring.

Medical receivables factoring provides you with financing based on your slow paying insurance claims. As opposed to bank financing, medical factoring is easy to qualify for and can grow, as your business grows.

It works as follows:
1. You bill insurance companies, Medicare/Medicaid and HMOs as usual
2. You then submit your invoices to the factor for financing
3. The factoring company advances you up to 85% of your expected collections
4. The remaining 15% is kept as a reserve.
5. You get immediate use of the money. The factoring company waits to get paid
6. Once the factoring company is paid, the remaining 15% (less a fee) is rebated

Invoice factoring streamlines your cash flow and allows you capitalize on your biggest asset: your slow paying claims from insurance companies. It is an ideal tool for new and growing pharmacies or healthcare providers who need the cash flow to grow and take their business to the next level.

Most healthcare businesses have to wait between 15 to 150 days to get claims paid by private insurance, Medicare/Medicaid and HMOs. Although most payments are made in 15 to 45 days, a simple change in billing codes or a request for additional documentation can add weeks or months to the expected payment date of a medical claim.

However, if you own a healthcare practice, DME, hospital or testing center you have expenses that must be paid like clockwork. Payroll needs to be met. Rent needs to be paid. Equipment must be bought. Not surprisingly, all these expenses have one common element – you either pay them or you go out of business.

This leaves you with two possible options. Either you must have a cash reserve sitting at the bank or you need to get financing to cover the wait.

Many healthcare businesses try to get a business loan or a line of credit. Although they can work reasonably well, they have one serious drawback. They have limits. And once you reach them, you are usually out of luck if you need additional financing.

The best alternative is to factor your medical receivables with medical factoring. Medical factoring provides you with financing based on your insurance claims, eliminating the wait and providing you with funds to operate your business. And opposed to traditional financing, you have no set limits. You can factor as many insurance claims as you can generate. It’s really a tool for growth.

Factoring is easy to implement and incorporate into your business. Here is how it works.

1. You send your claims to the insurance company and to the factor
2. The factor advances you up to 85% of your expected net collections
3. 15% is not advanced and is used as a reserve to handle charge backs
4. You get immediate use of the funds while the factoring company waits
5. When the claim is paid, the transaction is settled

Since factoring relies on the insurance company’s payment habits and financial strength, it can be a great tool for new and growing businesses that may not qualify for – or have exhausted – their bank options.