Factoring to Finance a Medical Imaging Center (and Improve Cash Flow)

Operating a medical imaging and diagnostic facility can be very capital intensive. A number of expenses, such as lease payments on diagnostic equipment and office space, need to be paid regularly. Diagnostic centers also have high employee costs for office personnel, nurses, and medical staff. These combined expenses place a heavy – and constant – demand on your operating capital.

On the other hand, revenues can be challenging. While the fees for services such as MRIs can be high, making centers very profitable, most third-party medical insurance programs pay claims very slowly. The combination of heavy expenses and slow revenues can create a shortage of cash, leaving you hard-pressed to pay certain expenses.

Use a cash reserve

One simple way to handle slow payments from medical insurance companies is to have a corporate cash reserve. The cash reserve should cover two to three months of corporate expenses. Obviously, you can pay expenses out of the reserve while you wait for payment on medical claims.

The problem is that building and maintaining a cash reserve can be very difficult, particularly in the early years of the imaging center while you are still trying to recover your initial investment. Likewise, it can be difficult to maintain a reserve if your imaging center is expanding to add new patients, services, or locations.

Consider external financing

If your diagnostic center is facing cash flow problems due to slow-paying claims, consider using external financing. Obviously, the need for business financing is greater if the company does not have a meaningful cash reserve. A line of credit is probably the best solution in this situation. You can use the line of credit to pay expenses and then replenish it when insurance companies pay claims.

One good financing alternative is the SBA Caplines program, which offers a working capital line of credit program through participating banks. However, the application process for a line of credit can be slow and time consuming. And while the program is easier to qualify for than conventional business loans, your business still needs to meet complex underwriting requirements — a challenge for companies with an immediate need for funding or without strong financial statements.

Accelerating medical claim payments

The primary problem for most imaging diagnostic centers is that insurance carriers pay claims slowly. One way to fix this problem is to accelerate the claim payments using a medical receivables financing program. This program enhances your cash flow by providing working capital to meet ongoing expenses.

The program is relatively simple. You finance medical claims through a finance company who provides an advance for them — paying you for the claims immediately. The medical factoring company holds the receivables and settles the transaction after the insurance companies pay the claims on their usual schedule. Read how medical factoring works for more details.

Advantages of financing your medical claims

Medical receivables factoring has some benefits over conventional financing solutions. The most important advantage is that the factoring line can grow with your imaging and diagnostic center. It can adapt to cover the value of your receivables, as long as they meet the financing criteria. Also, a medical receivables funding line can be secured quickly – often in a couple of weeks. Consequently, financing medical invoices can be an ideal solution for imaging and diagnostic centers that have cash flow problems and need immediate funding.