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The Healthcare Industry is notorious for having an antiquated billing and payment system. With the added complications of insurance and layers of bureaucracies, medical bills could take weeks or even several months before they are being paid. Even though it is customary for medical companies to experience slow-paying customers, too many unpaid invoices can have negative consequences for businesses by restricting their growth and cash flow For that reason, medical companies could benefit from healthcare invoice factoring, also referred to as medical invoice factoring.
Healthcare factoring is a financing plan dedicated for companies in the healthcare industry that are struggling with cash flow issues due to outstanding invoices with net terms between 30 to 120 days. With healthcare factoring, medical companies can continue to save lives without having to worry about limited cash flow.
There are two types of medical companies that benefit from medical factoring: vendors and providers. Vendors are medical companies that sell medical goods or services, such as medical staffing, equipment, transcriptions or transportation services. Providers are individual or institution that provides health care services, such as dentists or physicians. Typically, providers bill third-party payers such as insurance companies, Medicare, and Medicaid.
Healthcare factoring is ideal for both vendors and providers because these type of businesses have the reputation of working with creditworthy, but slow-paying clients.
Why would Healthcare companies need cash flow in the first place? Even though Healthcare is a trillion-dollar industry, it is still a competitive market. Similar to running any other type of business, each individual healthcare industry have their own expenses to take care of.
Healthcare factoring is ideal for service providers who work with slow-paying clients.
With all this given, healthcare business also need to have extra capital in preparation of situations specific to the medical industry such as:
Healthcare companies must work with a factoring company in order to obtain financing. Although there are many healthcare invoice factoring companies, each one works more or less along the same line:
After medical companies send out invoices with net terms between 30 to 120 days, they can start looking for a factoring company to sell invoices to.
Once the company selects a factoring company, the factoring company will review the business. They will also review invoices and ask for more information including credit checks on clients and patients.
After passing this review, the healthcare company will sign an agreement with the factoring company. This agreement will include details about all fees, the payment plan, and the initial maximum dollar credit line, which would be the greatest factored amount outstanding at any time.
After the agreement has been signed, the factor will give an advancement to the healthcare company called the advance rate, which is usually 80% - 90% of the invoice’s value. Healthcare company can get hold of this advancement up to 3 business days later.
Factoring usually involves transferring the responsibility of bill collections of the factoring company. The factoring company will contact the clients with information on how to send payments.
After the client has paid for the invoice, the factoring company will send any remaining balances, known as the reverse amount, to the company. As compensation for their services, the factoring company will also deduct their service fee, or rebate, from the remittance.
A similar financing plan and alternative to medical invoice factoring is medical receivables financing. Like invoice factoring, invoice financing also increases cash flow issues by providing advances on invoices. Both medical invoice factoring and invoice financing involve a third party company to coordinate the financing.
The main differences with invoice financing are that:
|Medical Invoice Factoring||Medical Invoice Financing|
|Actual Amount Advanced|
|Speed of Funds|