It stands to reason that businesses in the various healthcare subsectors—those involved in immediate care, diagnosis, medical technology, and medical IT for example—all require funding on a regular basis. But that’s easier said than done. The healthcare industry as a whole isn’t exactly attractive for prospective lenders and medical A/R lenders can truly be helpful in this regard.
Why Many Lenders Avoid Healthcare Businesses
It’s not difficult to understand why quite a few small businesses in the health care industry can’t get the funding they need from traditional lenders such as banks.
For one, healthcare businesses don’t have much in the way of assets. While they may use numerous pricey equipment to help them care for patients, the truth of the matter is that they don’t own them – they’re leased.
Another reason is that many companies have difficulty in billing and collecting accurately. That shouldn’t be surprising, since healthcare billing can be very complicated especially in light of the Affordable Care Act. And it’s a well-known fact that insurance companies are notorious for not paying the full amount billed to them.
Finally, there is the ongoing trend of increased mergers and acquisitions in the industry. Companies are merging and consolidating so that they can provide the widest breadth of service for patients. Companies which specialize only in certain tasks may find themselves out in the cold in the growing competition for patients.
How Medical A/R Lenders Help
But while traditional banks may be hesitant to lend to small clinics and hospices, medical A/R lenders are filling in the void. Small businesses in the healthcare industry have one obvious asset: their accounts receivable.
A/R lending is quite easy to understand. A clinic may have to wait for at least 30 days (and often for much longer than this) to get their money from the insurance carrier after they’ve treated a patient. This means the clinic often has trouble getting the working capital they need to pay off employees and buy medical supplies such as bandages, syringes, gloves, and medicines.
The A/R lender expedites the payment process by advancing 80% (this percentage varies depending on the lender) of the accounts receivable to the clinic right away. Then when the payment arrives in full, the clinic gets the rest of the money minus fees charged by the lender.
This setup offers a lot of benefits for clinics and other companies on healthcare. For one, the clinic doesn’t have to hire people to collect payments from recalcitrant insurance companies. The clinic employees can then instead focus on its most important job of providing quality care for the patients. It is the A/R lender who usually collects the payment on the clinic’s behalf.
This can even help clinics identify insurance companies with a poor payment record. In A/R lending, it’s the payer’s credit history which is crucial, and the lender can identify which insurance companies should be avoided in the first place.
With medical A/R lending, various small clinics and other companies in healthcare can get the funding they need at the time when they need it the most.