When a commercial factoring company is deciding on whether or not to accept a new client, they perform due diligence.  This includes doing a UCC search to determine if the receivables have already had liens placed on them.  They also investigate the credit standing and payment history of the potential client's customers.

Those are the two main components of due diligence relating to a factoring engagement with service companies, manufacturers, wholesalers, and distributors.

With medical invoice factoring, the funding source must take due diligence to a much higher level.  With ordinary factoring, the amount to be received is normally pretty clear.  A sale of 100 widgets at $10 each equals $1,000 and that is the amount the customer will pay when the goods are accepted.  With medical accounts receivable factoring, the situation is complicated by the complexities of billing.  When a healthcare provider bills for a procedure, they probably won't receive the amount that is invoiced.   This obviously has important ramifications for the factoring relationship because the amount to be advanced to the client is based upon the expected net collectible amount.

Because of this, the factoring company must do an extensive analysis of how much is expected to be paid by each payer.  Blue Cross may pay a different percentage of gross billing than United Healthcare.  Medicare and Medicaid will pay a lower percentage than insurance companies.  The main goal of a due diligence audit is to determine the advance rate that is commeserate with the expected amounts that will be paid.

Another purpose of a due diligence audit is to review the adequacy and competence of the billing and collections system.  Whether these functions are performed in-house or outsourced, the factoring company must know that there are not a lot of billing irregularities which cause the insurance company to delay payments.  The factor must also be assured that there is quck follow-up in regard to collections.  Insurance companies are notorious for holding up payments for any reason, so it's critical that the provider's staff react proactively to get any issued resolved in a timely manner.

The cost of a due diligence audit isn't cheap.  A small medical or dental practice will outlay a minimum of $2,000 and that represents the costs incurred by the factor.  Some funding sources charge a lot more, as they view the audit charge as a profit center.  The provider should weigh all costs associated with the factoring relationship to make an intelligent decision about which company to work with.

Sometimes the due diligence audit pays for itself because of the disclosure of billing mistakes and coding errors.  As most healthcare experts know, it doesn't take too many miscodings to add up to a significant amount of money.  The factoring company will also report to management any deficiencies in collections.

Get a free, no-obligation medical invoice factoring quote by calling us toll free at (800) 560-4420.