Medical receivables factoring has been gaining popularity as a way to finance healthcare businesses that need to improve their cash flow. Selecting the right medical factor is critical, given the importance of this type of financing for the growth of your business.
However, choosing the right factor may seem difficult because the market has numerous medical factoring companies. As a result, you need to use a methodical selection approach. You also need to ask the right questions.
Follow these steps to choose a medical factoring company.
Step #1: Find candidates
The easiest way to find medical factoring companies is to search for them on the Internet. Alternatively, ask colleagues in the healthcare field to recommend companies. You should aim to build a list with a few candidates.
Step #2: Evaluate candidates
The next step is to interview the factoring companies. It’s best to develop a list of question beforehand. However, the following list identifies some questions to ask.
a) How long have you been in business?
The medical factoring industry has been growing quickly. There are a number of new companies in the business. Ideally, you want to work with a company that has been in the business for a few years. If the company is new, ask if any of the founding executives have prior experience. Also, ask how they are funded – are they using their own investments, hedge funds, or a line of credit?
b) In what areas do you specialize?
Some medical factors are generalists, but most focus on specific industries, such as hospitals, nursing homes, medical offices, or diagnostic imaging centres. Make sure that the factors you speak with and select are comfortable with your specific field. If you are unsure, ask the factors to provide references.
c) Do you charge a due diligence fee?
This question is important since due diligence fees vary a lot from company to company. Some companies charge fairly high upfront fees, while others charge nominal fees. Make sure you understand how much they charge and what they use these funds for.
d) Will I need to pay for an audit?
Medical factoring companies often conduct an audit of your billing practices before providing financing. Factors want to make sure that you are billing insurance companies correctly and that you are getting paid as expected. Larger healthcare institutions may require an on-site audit, which can be expensive.
e) Can you work with Medicare/Medicaid?
Most medical factors can work with conventional insurance companies (e.g., HMOs, PPOs, etc.). However, only a few factors can work with Medicare and Medicaid claims. Medicare and Medicaid claims cannot be assigned like a conventional insurance claim. Consequently, the factor needs to use a special process to finance those claims. If you invoice Medicare and Medicare, make sure that your factor can finance those claims.
f) What opportunity size are you most comfortable with?
Most factors claim that they can finance a large range of opportunities – say, from $50,000 to $5,000,000. While they may have the funds to do so, most factoring providers specialize in opportunities of a certain size. This fact is not usually advertised, so you need to ask your representative. It’s often a matter of asking, “What is the average size of your client?”
Step #3: Identify the best proposals
Comparing factoring proposals is not always easy, since companies offer different programs. You generally need to find the average cost per dollar for each proposal so you can make an accurate comparison. Note that the factoring rate alone is not always a good indicator of total cost.
Also, keep in mind that the cost is only one aspect that you should be investigating. You should also consider:
- Are they easy to work with?
- Are they forthcoming with information?
- Are they helpful?
- Do you feel comfortable with them?
Step #4: Final selection
Once you have reviewed the proposals, make a final determination. Select a company that you are comfortable with and that offers a competitive program. If you are looking for a factor, please consider working with us.