Factors have provided an essential financing service for businesses for hundreds of years. While the forms of factoring have changed since they were introduced in antiquity, the basic idea remains the same. A client business or investor has assets with a known payoff date and the factor provides money in exchange for an interest in the asset. In the case of modern factors, that asset is almost always an invoice for services rendered. So, what makes medical financing programs offering factoring services different from more generic factoring programs?
Medical Invoices and Payment Timing
Medical invoices are unique in the way they present risks to the factor. Programs that focus on providing financing against the income expected from insurance payouts can be relatively sure of payment, but the timing is anyone’s guess because of the unique and unpredictable relationship insurance companies have with meeting financial obligations. As a result, the standard factoring arrangements that base risk on the timing of payment are usually less useful. It takes a special kind of actuarial calculation to compensate, and medical financing programs are staffed with the professionals that know those nuances.
Patient Bills vs. Insurance Invoices
It goes without saying that third party obligations like insurance payments tend to provide more capital when financed, but patient bills tend to be the ones with more predictable due dates and payoff timing. The problem is that on top of being the minority of most medical business’s income, those cash invoices do tend to have a high default rate in some areas of the industry. At the same time, though, some factors will bundle them together and offer a total factoring arrangement while others focus on factoring the receivables due through insurance carriers. Either way, it’s a different system than one built for factories that are just waiting for order payments.
Finding the Right Medical Financing Program
Each factor offers slightly different costs, timelines, and other perks of the service. The key to making this work as a cash flow management tool is finding the lender whose program best fits your medical business. Some financing companies focus on large institutions like hospitals and their extended care networks, others are made for independent practices. All you need to do to figure out who your factor should be is shop around, because the intended audience tends to be very clear when you look at the materials provided by different factors. Don’t wait, start checking around for the right factoring program today.