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Article: Medical Factoring Basics

Although some experts speak of gloom and doom in the healthcare industry, the industry remains strong and has been growing steadily. Every year, the demand increases for healthcare services, medical testing, and medical supplies. And this trend shows no signs of stopping.

Although the growth trend looks good, running a business in the medical industry keeps getting more difficult. Medicare, Medicaid, and third-party insurance companies have put in place complicated compensation guidelines designed to pay you the least possible amount of money, while taking as long as possible to send the payment. This situation is unfortunate but true.

The cash flow problem

You are getting paid less for your services and waiting longer for your money. But your business expenses are unchanged or, perhaps, increasing. You still need to pay employees, rent, and suppliers – creating a potentially serious cash flow problem that almost always affects your ability to grow your medical practice or business. And it almost certainly impacts your ability to operate effectively.

Is there a way to fix this problem?

If your biggest problem is that you are not able to wait up to 90 days to get paid by insurance companies and Medicare, then factoring your receivables could be the right solution for you.

The medical receivables factoring value proposition is simple: you work with a funding company that finances your medical insurance claims. Your business receives immediate funds that can be used to cover corporate expenses and grow the business, while the finance company waits for payment. The transaction settles once the claims are paid.

One important advantage of medical factoring over conventional business loans and lines of credit is that it can grow with your business. The size of your factoring line is determined by your ability to invoice for patient work and by the creditworthiness of your medical insurance claims. Also, unlike banks, most medical factoring companies do not require substantial collateral – which makes medical factoring ideal for small and growing businesses.

How does a medical factoring transaction work?

The process is fairly simple, though it varies based on your billing practices. Once an agreement is in place, most transactions are funded as follows:

  1. Your office submits claims to the insurance company and to Medicare/Medicaid (note: sometimes we can handle this task on your behalf).
  2. Your office sends a copy of the billings to us.
  3. We advance you – by wire or direct deposit – up to 85% (the average is 70%) of net collectables within two days. The remaining 15% “reserve” is rebated later.
  4. We wait to be paid by the insurance company or Medicare/Medicaid.
  5. Once we are paid, we settle out the transaction and rebate the remaining 15%, less the fee.

One important detail is that the advance (step #3) is based on your expected net collectable funds and not necessarily your invoice value. Often, invoices for medical services have two amounts: one is the value of the product or service, and the second is the actual amount that the insurance company is expected to pay – the net collectable amount. All fundings are based on this latter amount.

Financial advantage

Medical factoring is ideally suited for healthcare professionals and facilities that are experiencing quick growth but can’t wait long to get paid for medical claims. When used correctly, factoring can provide you with ongoing working capital and, most importantly, relieve the uncertainly of waiting for insurers to pay claims on their schedule.

Get a quote

We are a leading medical factoring company and can provide you with competitive terms. For an instant quote, please fill out this form. To speak with an expert, please call (877) 300 3258.


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