Medical Receivable Factoring

Some healthcare providers turn to medical receivable factoring as a way to create cash flow during the time between when treatment is given to a patient and the insurance company pays the invoice. For a doctor, having one's own practice entails much more than seeing patients and doling out medical advice. A doctor's office has the same concerns that any other type of business would; there are employees who need to have steady, consistent paychecks, and utility and overhead bills that must be paid in order to keep the practice operational. Sometimes, staying on top of these many different financial obligations can be taxing, especially if the practice is relatively new or is financially struggling. For these reasons, many doctors choose to align themselves with a medical receivable factoring company in order to keep their business and practice solvent.

The term medical receivable factoring can be confusing for those not already familiar with the concept. The process, however, is a relatively simple one to understand. Someone in the medical field, whether a doctor, physical therapist, paramedic, etc., can, if they own their own business, choose to sell the open invoices to a factoring company in order to get cash quickly. The only invoices that are generally eligible to be traded in this fashion are open ones that need a third-party's payment in order to be considered closed. This would mean that after a patient pays his portion of the bill, whether that is a percentage of the total or a set co-pay, then the remaining balance will be paid by whatever insurance company the patient has. The factoring company will advance money based on the total amount of the invoices, and the doctor's office would continue the collection process as normal. When the money is finally paid, however, the funds will go to the company rather than the practice. This gives the doctor the ability to use the money before the insurance company actually pays it, without having to worry about repayment or interest, such as with a loan.

It is important to understand what factors can affect the fees that a healthcare practice has to pay once agreeing to a contract with a medical receivable factoring company. Generally, a company will decide how much to charge a practice based on the amount of open invoices transferred at any given time and the average time that it takes to collect. For example, invoices that are not due for three to four months will automatically require higher fees than ones that may be coming due in several weeks or a couple of months. Most companies will advance the practice a standard percent on each batch of invoices sent to the company. This percentage is generally agreed upon before business even commences and usually does not fluctuate. Once the insurance or third party company makes the remaining payments on the balances due to the invoices, then the factoring company will pay the practice the remaining percentage due. This, of course, never equals the total amount of the invoices because the company has to take out its fee.

Since most agreements between a healthcare provider and a medical receivable factoring company are for an extended period of time, a person needs to make sure that they are well acquainted with the factoring company's reputation. Any time that money is exchanging hands, especially on a continual basis, a relationship of some sort is created. And a doctor or other medical professional will do well to make certain that he does not enter into any type of relationship that he may regret later. Many factoring companies see themselves as "silent partners" in the practice. This can be a good thing, of course, because the advancing of cash in lieu of open invoices fulfills a definite need for the practice. On the other hand, the partnership could sour quickly if a person aligns himself with a company that is unscrupulous and less than honest about what they expect from the doctor.

So what is the best way to make sure that the healthcare provider is going to be partnering with a legitimate medical receivable factoring company? The first step is to check out the company thoroughly; doctors should ask around, checking with their colleagues to see if anyone has had any experiences, good or bad, with the company. Secondly, the practice should make sure to check with government agencies such as the Better Business Bureau to see if any record of the factoring company is listed. Between these two options, a doctor should have a pretty clear indication of what his peers, and others who have used the company, thought and whether the endeavor is worth pursuing. The healthcare provider also needs to be sure to read the contract thoroughly before signing anything. Oftentimes, disreputable companies will try to sneak hidden fees and charges into the contract, hoping that the customer will not notice until too late. Any legitimate company will be completely honest about any fees and assessment charges that the provider may have to pay, and a reputable company should not hesitate to answer any questions the practice may have before signing the contract.

Many practices choose medical receivable factoring as a way to secure immediate access to money that will be paid eventually without having to take out a loan. Often borrowing money can have many negative drawbacks and can cause much grief for the borrower. If possible, finding other avenues to generate cash flow is advisable as even the Bible cautions against falling into debt. "For the Lord thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee" (Deuteronomy 15:6). Choosing medical receivable factoring can be, if done wisely and cautiously, the best way to keep a struggling practice afloat or to bolster a new doctor's business until the finances are stable and secure.