Medical receivables are invoices owed to medical practices and facilities usually payable by third parties such as insurance companies, HMO-PPO’s, Medicare or Medicaid and government institutions and agencies. The cumbersome and confusing regulations for billing and processing often slow the accounts payable process to a cash-flow-strangling situation.
Medical professionals and healthcare facilities are forced to operate while waiting 3 to 5 months to receive payments for services rendered and products delivered. Medical, dental and other healthcare facilities can reduce the wait time and obtain working capital by utilizing either accounts receivable financing or factoring. The two methods are similar but different in one important aspect.
If your healthcare organization has an accounts receivable volume of around $500,000 net realized value per month, those accounts receivable may be used as collateral to obtain working capital in a matter of days rather than weeks. This is accomplished by offering you, the healthcare provider, a credit line from which you may draw upon as needed for your practice’s operations.
Factoring is similar to AR financing but instead of using the medical receivables as collateral, the receivables are sold outright at a discount to the funding source. If the net realized value of your receivables is less than $500,000/month, you will probably be offered this option.
1) You are free to operate your healthcare business and use the capital for expansion, payroll, equipment financing or day-to-day operations.
2) Your credit rating is not as critical because the creditworthiness of your debtors determines the level of risk to the funding source.
3) You are freed from the long wait periods before you receive third party payment.
Hospitals, medical clinics, dental offices, nursing homes, rehabilitation centers, physical therapy companies, laboratories, single and group practice physicians, MRI facilities, chiropractors and other long term healthcare facilities can use receivables financing.
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