How Medical Factoring Can Help Your Medical Business

By: Kris Koonar

If you are running a medically related business such as medical supplies to doctors or hospitals or running a clinic, then you must be aware that although sales have improved, margins are under pressure and the waiting period to collect pending payments are increasing day by day. Also with the advent of Medicare and other insurance companies making the payments after completing their assessment, the wait for payments has increased to around 120 days and that could hamper your cash flow and hence your growth. You could approach a bank for your needs but that would require endless paperwork, collateral and lots of time. You would also have to pay a fixed percentage of interest on that loan amount. Here is where medical factoring could be a lifesaver to your business. Here is how it works.

Normally when you sell your items to doctors or hospitals, you make a sales invoice or you put up a claim to insurance companies or Medicare or Medicaid to claim for services provided. You can "Sell" your sales invoices issued to various reputed doctors, clinics or hospitals and even your claims to insurance companies to your factoring company. The factoring company then electronically transfers the invoice amount in 2 installments in the following way. The first installment is usually 60 to 85 percent of the invoice amount and this amount is transferred to your account in 24 to 48 hours. The second amount, also known as the "reserve" amount, is transferred minus the factoring company's fee when the full invoice amount is received from your customer or insurance company.

The factoring fee is usually between 1.5 to 15 percent of the invoice value, depending on the rating of your customer or insurance company as decided by your factoring company, the number of days of credit given, and the monthly invoice totals i.e. the volume of sales and claims. Your factoring company might also take care of collecting the payment from your customers and they can send you regular statements of the payments collected from your customers and the pending receivables statement. This can free up your collection department and you can utilize your time and their services in a different way. The more your value of receivables, the lower the rate of commission!

Getting most of your invoice amount immediately also improves your cash flow and that money can be utilized in paying off salaries, suppliers and even in making bulk or cash purchases, which could give you a better profit margin. You can also execute large orders from hospitals without having to worry about your money getting locked during the credit period. If you have a testing or diagnostic center, then you can invest in new medical equipment. You could even hire more staff to increase your business.

Find a matching medical factoring company through a reputed factoring broker or even through the Internet. The medical factoring company should be able to provide you prompt service and should also be efficient and courteous while collecting payments from your customers or insurance companies. Since many of them also take care of bad debts, you will also have to worry less about collection of payments and bad debts. This will help in taking your medical business to a new high.

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