Small medical practices often face cash flow issues due to slow-paying insurance claims. Some claims can take up to four months to clear, and in the meantime, these practices cannot purchase new supplies or invest in new medical technology that could make treating their patients easier. However, medical factoring, which advances up to 80 percent of a claim’s net profit to a practice directly after a claim is filed and then returns the remainder of the cash, less a financing fee, after the claim is paid, can help smaller facilities in a number of ways.
Creating a Healthy Cash Reserve
While doctor loans can help medical facilities build a cash reserve, this is not always the best option for small practices because reserves cannot be fostered when high interest rates and monthly payments eat up any extra cash. This is why medical factoring may be a viable way for small practices to create a healthy cash reserve, as the money it receives is an advance on revenue already earned as the result of providing medical treatment. The first installment is deposited into the practice’s bank account after the claim is filed, and the remainder is returned after it is settled, and the finance fee is typically less than what a medical practice would pay in interest fees, late payments and other charges attached to a loan. As a result, small practices that use factoring may become independent more quickly.
Grow at a Rapid Rate
One of the greatest advantages of medical factoring is that is can help a small practice grow at a more rapid pace than it would with doctor loans. This is especially advantageous for physicians who have recently launched a small facility with hopes for expansion, as cash flow issues are typically more common in the first few months as the practice acquires the supplies it needs in order to run things smoothly. In addition, a small practice usually cannot afford to wait 120 days or more for a claim to clear if bills resulting from the launch are now due. However, because this type of financing can be obtained more quickly than a doctor loan in most cases, cash reserves can be put in place for future growth as well as for paying off debts.
Medical factoring is generally easier to obtain than a loan; therefore, it may be tempting to accept financing right away. However, each lender may have different guidelines concerning factoring, and those that specialize in assisting smaller practices with this type of financing may be the best choice for some facilities.