 These are difficult times for the heatlhcare industry. Revenues in
general have slowed due to the recession, as more people have lost
their jobs and heath insurance. Elective surgeries and procedures have
also declined. To compound the problem, Medicare is offering lower
reimbursement rates and insurance companies are taking longer to pay.
Medical invoice factoring is an important tool now more than ever to
bring much needed working capital into the practice or hospital.
Accounts receivable factoring has been in existence for centuries,
but is relatively new for the medical and dental industries. Medical
invoice factoring is available for third party billings only. These
are government programs like Medicare, Medicaid and various state
programs and insurance companies such as Blue Cross and Aetna. Patient
responsibility charges such as copays, deductibles, and elective
surgeries cannot be factored. Medical invoice factoring in a nutshell Simply
put, it is the purchase of a medical practice, clinic, or hospital's
third party receivables at a discount. The factoring company advances
75% to 85% of the expected net collectible value of the billings in
immediate cash, which is wired directly to the provider's bank
account. The remaining amount (15% to 25%) is called the reserve and
is remitted back to the medical or dental provider when the government
or insurance company pays the bill less the factoring fee charged
during the period. Setting up an invoice factoring arrangement The
types of initial information required on the front end varies from
factor to factor. But generally, a completed application that requests
basic information about the practice, past two years financial
statements, articles of incorporation or LLC operating agreement, and a
current third party accounts receivable aging report are required. If
the factor likes what they see, they will issue a Letter of Intent,
otherwise known as a term sheet. This document states the proposed
terms of the arrangement, such as the advance rate, fee percentage per
thirty days, and the cost of the due diligence audit. If the
provider agrees to the terms, he signs the Letter of Intent and submits
a check for the amount of the due diligence audit. The audit is
necessary for the factor to review the practitioner's billing and
collection system, analyze the collections history by payer, and
determine the average percentage of the gross billings that are
expected to be paid. The net collectible percentage will be applied
to invoices that are submitted for factoring. If the factor is
comfortable with the results of the due diligence, a contract is drawn
up which states in specific terms how the relationship will work for
both parties. I always advise to my clients that they review the
contract very carefully, or have their lawyer look it over so they will
feel comfortable about what they are signing. I only represent medical
invoice factoring companies that produce contracts that are straight
forward and relatively easy to comprehend, so there is not likely to be
any :"surprises" in the document. Once the contract is signed,
funding can begin immediately. How Invoice factoring is different than a bank line of credit Many
banks aren't comfortable loaning money to medical and dental providers
when the collateral is their third party accounts receivable. That's
why they place restrictions on the credit line. With medical accounts
receivable factoring, funding is normally limited only by the pool of
third party receivables. There are other differences: - Factoring is not a loan, so it will not negatively effect the provider's balance sheet
- Unlike most bank loans, a personal guarantee is not required
- No additional collateral is needed
- The credit score of the provider is not an issue
Medical invoice factoring has grown substantially in volume in 2009
as banks have pulled back on their lending. Although the financing
costs are typically greater than conventional loans, the influx of cash
flow allows the provider to count on a stable working capital base to
maintain or grow their practice.
Apply for medical invoice factoring today or call us at (417) 849-7394. Contact information: EMAIL:
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