The healthcare field is an essential part of society, maintaining the health and wellness of its citizens. But because it’s a business, its success relies heavily on its cash flow. There are a number of reasons why small hospitals and medical offices may experience cash flow problems, but medical factoring can help them get the money they need to continue serving society.
Interrupted Cash Flow
The biggest reason small medical businesses may experience interrupted cash flow is unpaid invoices. The vast majority of those seeking medical attention have some form of insurance, which means medical businesses are not getting paid directly and immediately by a patient. Because of this, there can be a significant delay between the service rendered and the final payment. In fact, it can take anywhere between 30 and 180 days for claims to be processed. Slow, inconsistent payments and large expenses that come with running a hospital can put a serious financial strain on the business, making them less likely to be able to effectively supply the demand for their services.
Reasons for Factoring Invoices
Hospitals have many of the same expenses as any other business does, such as rent or mortgage, utilities, and payroll. If these basic bills are not paid, the business cannot be expected to run effectively. The healthcare industry also has additional expenses, such as medical equipment and supplies. Equipment can be quite expensive, and if a small hospital needs repairs or even a new piece of equipment, it can inhibit their positive cash flow. Medical supplies are also difficult to manage because their cost depends on the market value. The unpredictability of the market can lower a business’s control of their finances, but factoring their invoices can help them get the money to keep their hospital stocked with the essentials.
How Factoring Works in the Medical Field
Because getting payments from insurance takes so long, many small medical businesses use medical receivables factoring to boost their cash flow. They would work with a medical factoring company, using any pending insurance claims as collateral in order to procure funds far more quickly than waiting for the claim to be processed. Based on the specific needs of the business, the company would provide a certain rate for an advance, and after the claim is paid, the third-party company will take a small fee for financing the hospital. So long as the factoring plan is constructed appropriately, the cash flow and fees will be predictable and easily manageable.