In any type of business, there is always the need for sufficient funding. Without it, the business simply cannot survive. But such reality is even more evident in the health care industry, where many businesses operate on very limited capital. This is because businesses like medical clinics and hospitals are often paid through insurance claims, which take as much as 120 days to pay up. Such delays create substantial cash flow problems for health care providers who have daily overhead expenses to take care of.
What is Medical Factoring?
The rise of medical factoring services is welcome news for businesses in the health care sector. Medical factoring solves cash flow problems by providing you with ready cash that you can use in any way you deem necessary while you wait for your payments.
Medical factoring companies usually do not have stringent requirements. They will only evaluate the credit-worthiness of the insurance company to whom the insurance claims were filed, and once that is established, they will immediately give you an advance against the claim. Simply submit your approved claims to the factoring service, and they in turn, will advance as much as 80% of the claim. Once the claim is paid, the factor then gives you the remainder of the payment minus their fees.
Pros and Cons
The single most crucial benefit of opting for medical factoring is that it solves your cash flow problem. Now, with their help, you don’t have to worry about when insurance companies will pay you. You can get your much needed capital resources in just a few days, instead of months.
Another benefit of choosing this alternative form of financing is that it gives you flexibility. While it is possible to get a line of credit from the bank, you can simply use medical factoring to give you the funding you need not just to stay afloat, but even to grow and expand (or to down-size if necessary). You get to choose which (and how much) of your approved insurance claims you can submit for factoring.
But of course, while it can literally be “life saving,” factoring not exactly without drawbacks. For one, the fees can be higher than what banks and other traditional lenders would charge. So before opting for it, see to it that you have a good understanding of the terms and fees of the medical factoring service.
Who Can Apply for Medical Factoring?
Medical factoring companies usually offer financing to the following:
- Home healthcare companies
- Nursing homes
- MRI clinics
- Physical Therapy/Rehabilitation companies
- Radiology centers
- Medical equipment providers
- Ambulance service providers
Approaching medical factoring companies is especially practical for startup businesses that don’t have credit history, which is a standard requirement for bank loans. Factoring is also suitable for those who need financing to make payroll, those who want to expand their business or buy new and expensive equipment and machines. To get the most benefit from medical factoring, always choose a factor with extensive experience dealing with health care businesses.