How Medical Account Receivables Factoring Can Provide Improved Cash FlowWest Asset Management and other finance solution providers have created some specific financing solutions for the health care sector in order that they can offer medical account receivables factoring. A particular complication when factoring companies are factoring receivables in the health care sector is the fact that special arrangements often exist between the medical practice and the insurance companies regarding discounts and the factoring company can become involved in factoring invoice discounting schemes.
Medical account receivables factoring is in essence a similar arrangement to any other factoring scheme. A service is provided, and an invoice is raised for payment. That invoice is sold to the factoring company for a percentage of its value to produce almost instant cash for the business. However, factoring receivables in the medical sector is slightly more complex with added steps in the process.To begin with, health care billing transactions are rarely between the first and second parties. That is the doctor and the patient. Invariably, the doctor provides the healthcare to the patient but then bills either an insurance company or a government health care agency - this is third party billing. Whereas in normal trade situations debtors are expected to pay within 30 days, insurance companies demand a 120 day minimum term which causes a headache for the medical practice and financing company. The total on the invoice is rarely the amount actually paid. Factoring companies must take this fact into account when offering medical account receivables factoring. It is not uncommon for invoice discounting to be offered to insurance companies which leaves a percentage of the invoice payable. Also, insurance companies often dispute items on medical accounts so adjustments must be made. For these reasons a much reduced percentage of the invoice total will be forwarded to the health care practice than might be expected in any other industry sector. Most factoring companies, including West Asset Management, will not include patient invoices when factoring receivables. They will only include invoices due from insurance companies in the scheme. Patient invoices are high risk and enforcing bad debt collection procedures against individuals who are sick does not win factoring companies any goodwill within communities. Medical practices in the health care sector sometimes need help with financing the day to day running of the business just like any company. In fact, with the extended credit period demanded by insurance companies they are more likely to seek the help of a medical account receivables factoring company. Whilst the increased risks of the health care sector had to be considered by the factoring companies a solution is available that provides cash for the healthcare provider without increasing the risk to the finance provider. In a trading environment businesses are often reluctant to consider factoring as a solution to their financing needs because of the message it may send to their customers. However, as a high percentage of medical account receivables are due from insurance companies, they are third party bills, this concern is not relevant to the health care sector. |