Health Care Factoring
Financial challenges brought on by cash flow shortages have traditionally been associated with industrial or retail businesses that must commit money to raw materials or inventory, but they are forced to wait for payment of their invoices for weeks or months. Outstanding accounts receivables mean that a business must wait for slow-to-pay customers in order to maintain any measure of cash flow.
Providers in the health care industry may also be susceptible to cash flow shortages. Physicians, nursing homes, hospitals, medical equipment companies and other health care providers that depend upon payments from health insurance companies, Medicare and Medicaid can face severe cash flow challenges caused by slow paying insurers and government bodies.
Medical providers have discovered a solution to their cash flow problems through accounts receivable factoring. It is the same solution that companies in other industries have been taking advantage of for years to solve their cash shortage issues.
Challenges Faced by the Medical Industry
The health care industry is composed of an assortment of companies and individuals offering services, supplies and equipment. One thing they all have in common is their dependence on payments from third party insurance companies and government agencies to provide the cash flow that is vital to their operations and growth of their businesses.
Typical health care providers and the cash flow challenges confronting them include:
- Doctors, group practices and urgent care clinics: Overhead to keep an office operating, staff salaries and supplies are just some of the expenses physicians must pay out regularly just to keep their offices open in order to provide care for patients.
- Nursing homes: Money must be spent to maintain staffing levels and services to care for the residents, overhead and other operating expenses must be paid.
- Diagnostic and imaging centers: Most facilities lease the MRI, CT scan, PET scan, X-ray and other diagnostic equipment at an enormous monthly cost on top of other overhead and operating expenses.
- Physical therapy and rehabilitation centers: Payments for equipment, supplies, facilities and other operating expenses can create cash flow issues if insurance and payments from government programs are delayed.
- Home health care agencies: Companies providing care to people in their homes as they recover from medical procedures, injuries or illnesses must meet weekly payroll expenses for the nurses and health care aides working for them. These costs, added to other operating expenses, make it essential that a continuing source of readily available cash be available.
- Companies providing home medical equipment: The sale and rental of oxygen equipment, wheel chairs, hospital beds and other equipment supplied to patients convalescing at home is how these companies make money. A shortage of cash as they wait for payment from Medicare, Medicaid, workers’ compensation and private health insurers can hamper a company’s ability to acquire additional equipment as needed.
Besides needing funds for operating expenses and working capital requirements, providers in the health care industry are constantly challenged by changes in technology and other demands on their capital allocations, including:
- Government mandated electronic medical records
- Facilities modernization and expansion
- Changes in regulatory policies requiring capital expenditures
- Need for updating or replacing equipment to meet new standards
These and other demands on the cash reserves of your health care company or practice makes it essential to have a reliable and cost-effective source of funds.
Traditional Financing Methods
Traditional financing methods used by companies to obtain working capital for operating expenses or expansion have been limited to debt and equity financing. Debt financing includes:
- Bank loans
- Asset-based loans
Traditional loans and asset-based loans from institutional lenders and private sources of funds, can be difficult for new companies or practices to obtain because of underwriting guidelines which established credit and lengthy business history. Loans can be expensive with additional added fees by the lender in addition to interest charges. One of the biggest drawbacks of a loan is that it is generally a one-time infusion of cash that adds another layer of debt and requires monthly payment by accounts payable from an already cash-strapped borrower.
Bonds are issued by corporations. They are debt instruments that must, eventually, be repaid with interest. As with other types of loans, an organization trying to sell bonds must show a credit and financial history satisfactory to potential buyers.
Equity financing is another method that corporations can employ to raise capital, but it comes with some inherent risks. Equity financing involves the sale of stock in the corporation. Although it brings capital into the organization, the downside is that the purchasers of the shares of stock acquire an ownership interest in the corporation.
Receivable Solutions from Factor Funding Co.
Accounts receivable financing, also known as factoring, offers a company or practice a rapid cash infusion without the burden of an additional monthly debt payment. Unlike traditional lenders that offer you a loan secured by the value of your accounts receivables, receivables factoring lets you sell your outstanding accounts receivables for an immediate influx of cash without the burden of repayment from you, rather from your debtors
Factor Funding Co. accounts receivable program is available to any health care provider with a least $100,000 in net monthly receivables payable by any one of the following:
- Insurance companies
- State workers’ compensation insurance companies
- Managed care agencies
- State and local government contracts
- Other businesses
Through factoring, the money a health care provider elects to receive on a weekly, biweekly or monthly basis will come with no strings attached. You can use it to upgrade technology, pay expenses, replenish working capital, expansion or for any business purpose.
Frequently Asked Questions about Factor Funding Co. Program
What will it cost to sell my medical receivables?
The cost is based upon the value of the receivables factored and the time elapsed from the date of funding to you and the date on which the invoice is paid and closed out.
How soon will I get the funds?
A typical transaction takes from one to seven days to establish an account. Funds are available 24-48 hours after initial approval and each time you submit additional invoices or funding requests.
Do I have to sell all of my claims?
No, you may sell as many or as few claims as you wish.
What is claim-by-claim funding?
Each time you submit a claim for payment to a third-party payer, you may submit the claim to us for verification and payment of an advance.
What is batch funding?
Instead of submitting each claim separately, you may submit the claims in a batch or bundle format for payment approval.
How much is the advance I will receive?
An advance is between 70 percent and 95 percent of the approved receivables.
What happens when payment is received from the third-party payer?
When we receive payment from the payer, any portion of the payment that exceeds the amount advanced plus fees will be refunded to you.
Find Out More about Health Care Receivables Factoring
The experts at Factor Funding Co. have developed innovative receivables factoring solutions to meet the unique financial challenges faced by health care providers. Learn more about solving your most difficult cash flow issues by calling today. You can also download our convenient receivables factoring application form.