Benefits of Medical Factoring

Posted by Factor Funding Co. on January 8, 2015

For all the controversy leading up to the Affordable Care Act of 2010, also known as Obamacare, there is an undeniably beneficial aspect of this comprehensive legislation that cannot be ignored: The health care industry in the United States is rapidly expanding and expected to keep growing in the next few years.

A recent article in the Harvard Business Review indicates that a flurry of technology companies in the U.S. have set their sights on the health care industry. The reason for this is that various provisions of the Affordable Care Act call for a modernization of the industry. Many of these tech companies are startups led by entrepreneurs who are well-prepared to face an unpleasant fact of this industry: the notorious bureaucratic and slow process of settling medical claims. To this end, these tech startups are familiar with factoring financing, and owners of businesses that operate in the health care industry are paying close attention.

Understanding Medical Factoring

Factoring is considered an alternative form of financing. Due to the competitive nature of venture financing in the Silicon Valley, tech entrepreneurs are more familiar with factoring. Let’s say a mobile software developer lands a contract with a state health department to develop an Android app that informs people about the dangers of high cholesterol. Once the app is satisfactorily delivered, the developer knows that he or she may have to wait up to 90 days before the state pays for the invoice.

If the developer in our example above presents a copy of the invoice to a factoring financing company, he or she could see a substantial cash advance in just days. This is obviously a more ideal situation than having to wait three months for the state to settle the invoice, and this is something that owners of medical businesses can certainly take advantage of.

The medical factoring process is simple. It works like this:

  • A copy of an invoice or insurance claim is submitted to a factoring company
  • A substantial cash advance is made to the medical service provider within days
  • Once the claim or invoice is settled, the medical factoring company remits additional funds, if any, to the provider

Thanks to finance technology, the steps above can be carried out quickly and efficiently these days, and the financing charges are just pennies on the dollar.

Important Benefits of Medical Factoring

The immediate benefit of medical factoring for health care practitioners and owners of businesses that provide services to the medical industry is that it allows them to establish a solid base of cash flow. Instead of waiting on Medicare or a major insurance carrier to settle a claim in a couple of months, a cash advance can be made in just a couple of days.

Another major benefit of medical factoring is that it offers considerable flexibility to small business owners. Not all account receivables have to be turned over to a medical factoring company. A small clinic can choose only a few claims to be financed by a factoring company; usually those claims that have to be sent to an insurance carrier that is known to take a long time to pay.

For medical service providers in the midst of expansion, factoring can help them grow quickly and efficiently. For example, a delivery service that transports medical specimens from clinics to laboratories can submit a few invoices to a factoring company for the purpose of having enough cash to take prospective clients to lunch, purchase new uniforms for drivers, handle the increase fuel expenditures, perform maintenance on its vehicles, acquire new mobile devices, etc.

Less Known Benefits

A seldom-mentioned benefit of medical factoring is that it can also serve as a means to reducing the overhead created by tracking claims, invoices and collections. Some medical factoring companies offer these value-added services to their clients.

In the end, medical factoring has the potential to help the growing American health care industry by providing cash flow, peace of mind, and helping business owners stay in business as they seek to expand their operations.

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