In the medical industry, there are lots of large expenses being managed all at the same time. This is especially true for those working in the hospital industry. Between payroll, large facilities, training, compliance and specialized equipment, the expenses can start to add up.

As far as money that comes into the hospital, this is largely made up of claim payments that are coming from medical insurance companies. While there is security in going through these insurance companies, the payments can take a long time to come in. Depending on the specific arrangements made with the insurance companies, you could wait anywhere from 1-6 months to receive payment. This can really affect cash flow when trying to bring on new staff or get newer equipment to provide better care to patients.

Being able to manage cash flow efficiently as a small or mid-sized hospital can many times be the difference between staying afloat and falling behind. One tool that hospitals have at their disposal is that of medical factoring.

What is Medical Factoring?

Medical factoring is similar to accounts receivable factoring in that you can secure immediate funds using your pending insurance claims as collateral. This method of financing allows you to improve immediate cash flow while waiting for payments to come in. When done right, factoring also allows a hospital to predict cash flow, making it easier to make financial decisions in the short and long-term.

How Does Medical Factoring Work?

The idea behind how factoring works is actually pretty simple. Essentially, you decide the claim (or claims) you’d like an advance on, and you sell that to a medical factoring company. You can receive anywhere from 50-100% of the pending claim upfront, but 75% seems to be a pretty standard average across the industry. Once the claim has been fully settled, the factoring company settles the account and pays back the remaining amount, minus their fees.

The actual amount of the financing fees that the medical factor takes depends on how big the financing needs are that you have and the quality of the claims. The quality of claims can depend on the dependability of the insurance company paying the claim as well as the age of the claim. One thing to be aware of is that larger accounts generally get volume discounts, so it may be in your best interest to factor more at a time and negotiate lower terms over the course of the arrangement.