Healthcare Factoring vs. Medical Factoring – What’s the Difference?
It’s clear that the medical and healthcare industry is a rapidly growing space. In order for practitioners to thrive, access to working capital is a must. According to an article by Emily Berry of American Medical News:
“Borrowing is increasingly common for medical practices. Loans to medical practices backed by the Federal Small Business Administration have been rising steadily during the past decade. In 2011, the SBA backed $649.8 million in 1,516 approved loans to physicians, more than four times the amount of borrowed money it guaranteed in the 625 SBA loans approved in 2001, according to SBA data.”
With the need for working capital growing, knowing the difference between healthcare and medical factoring is even more important. While these two terms are often used in conjunction with one another, it is important to note that there is a significant difference between them. Not only is there a difference between the terms themselves, but there is often a difference between the factoring companies that will work with one type versus the other. While only specialized factors process medical receivables, a more broad and general array of factoring companies work with healthcare-related receivables. However, in some cases, medical factoring specialists will also handle healthcare factoring receivables due to their general familiarity with the industry.
What is Healthcare Factoring?
This form of financing involves clients that work in the healthcare industry, but do not bill health insurance companies, Medicare/Medicaid, HMOs, etc. Healthcare-related companies provide services to other organizations such as hospitals, rehabilitation facilities, doctor’s offices, and more. Some examples of clients are distributors of durable medical equipment, medical billing or coding services, and medical staffing companies. The invoicing and remittance process for these companies is often much less complicated than the billing process for medical factoring clients.
The healthcare factoring process begins as soon as the client has completed their order or service for the customer. As soon as the customer is invoiced, the client submits a copy of the paperwork to the healthcare factoring company. Within 24 hours or less, the factor will deposit up to 85% of the gross invoice value into the client’s bank account. Then, the factor will wait for the customer to make payment in full (often 30 days or more). As soon as payment is received, the factor refunds the remaining balance to the client after deducting a small fee. One obvious benefit with this process is that the client receives working capital within 24 hours of invoicing their customer. This provides the client with the ability to make payroll, cover overhead, and pay for other operating expenses while the factoring company waits weeks or months for payment.
What is Medical Factoring?
Medical receivables factoring is a process of generating working capital primarily for organizations that bill health insurance companies, Medicare/Medicaid, and HMO’s for their services. These are direct medical providers who care for patients in a variety of capacities. This is viewed as a very specialized industry due to the nature of the customers. Insurance companies and Medicare/Medicaid have very specific, federally regulated policies in place. When it comes to submitting claims to these organizations for a medical provider to be reimbursed, everything must be handled correctly or payment can be severely delayed or even rejected. Only experienced and specialized factoring companies should work with these types of clients.
The medical factoring process is quite similar to the healthcare process in that the client (medical provider) bills the insurance company or Medicare/Medicaid, then submits a copy of the paperwork to the funding company. The factor will deposit up to 85% of the net collectable value of the claim into the client’s bank account typically within 24 hours or less. As soon as the claim is paid, the factor will then release the remaining funds to the client, less a small fee. One large difference between this process and its healthcare counterpart is the time it takes for payment. Medical providers often wait up to 90 days, or even longer, to receive reimbursement from the insurance companies and Medicare/Medicaid. By selling their invoices, the medical providers have access to immediate working capital to help operate and even grow their practices.
Conclusion
If you work in the healthcare or medical fields, and could benefit from immediate working capital for your receivables, contact us to see how we can help. We will be happy to speak with you regarding your business model and financial needs. Even if you have questions, but are not quite ready to make any decisions, we will always be willing to provide you with more information for when the time is right.