Finance, Loans

What is Medical Factoring?

red-crossMost people in the health care field have no knowledge about medical factoring and usually have never even heard of it. As a result, they may struggle with cash flow problems or try getting a loan to get over that next hump, when there was a readily solution available for them. Those companies and groups that have tried medical factoring are able to take advantage of running their businesses rather than worrying about how they will make payroll or finance an immediate need for new equipment. Medical factoring provides most of the needed cash almost immediately after you send out invoices. It is simple, flexible, and does not show up as debt on your balance sheet, like a bank loan would.

The ideal candidate for factoring of medical receivables is one that bills out to strong but slow-paying 3rd-party insurance companies or to government entities like Medicare. The medical factoring client could be a nurse staffing agency, a durable medical equipment provider, a health clinic or hospital, or any number of other providers of health care goods or services. The main item that separates medical factoring from commercial factoring is that medical factoring mainly bills out to insurance companies or government programs, while the latter is more likely to bill out to other companies. Typically, the factoring client would be a medium-sized company in growth mode that has cash flows not accelerating fast enough to keep up with revenues and expenses. Most often, though not always, the medical factoring customer would be billing out at least $100,000 per month, on average.

The Process

To see whether medical factoring can help with your cash flow issues, you should first contact a company like Seascape Capital to ascertain whether it would be a good fit for you. Assuming that it is, you would be asked to provide detailed information about your company and its owners, a listing of your current customers and their pay history, your accounts receivable summary page, articles of incorporation, etc. The factoring company would then review the documents and have an in-depth discussion with you to make sure that everyone is on the same page, discuss preliminary pricing, and talk about next steps. Since reviewing a company for medical factoring takes a great deal of time and some expense, there may be a small upfront fee that you would be asked to pay.

Once you have been approved by the medical factoring company and everything is set up, you could begin factoring immediately. The factoring company would give you up front 75-80% of the expected receivables amount immediately after you send out your invoices. Let's take an example to clarify:

  1. You bill out $250K to your customers and expect to receive 100% of that amount (in most instances, 100% reimbursement is not realistic but we are keeping this example simple)
  2. Within 24-48 hours of your invoices being sent out, the medical factoring company electronically transfers to you $200,000 (80% of the billed out amount)
  3. When the invoices are paid, say, 40 days later, the factoring company remits the remaining amount to you less the previously agreed upon factoring fee.

You are not required to factor all or even most of your invoices. Factoring is incredibly flexible in that you only factor the amount that you need to meet your financial obligations, which can even change from month to month. Medical factoring is not the cure-all for all financial issues but can be a great help to most companies experiencing cash flow issues that are either short-term or long-term in nature.

Alan Noblitt is the owner of Seascape Capital Inc. He may be reached at 1-800-634-4697, or visit the website at .

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