A/R Factoring
In simpler terms, medical factoring or medical accounts receivable financing means selling off the accounts receivables accrued by the medical institution to the financing firm. The claim owed to the patients medical insurance provider by the patients medical insurance carrier is the accounts receivable in this case.
Medical practice provides its service to the patient and the medical insurance company is billed on behalf of the patient, this is the receivable accrued by the medical industry.
The medical industry then approaches the accounts receivable financing industry and sells these accounts receivables which in turn releases about 80% to 95% of the net collectible amount for a small fee ranging from as low as 1% to 5%. The funding company assumes the responsibility of collecting the receivable amount from the medical insurance companies and pays the balance amount once the entire amount is collected from the insurance company.
The medical industry in this way can gain a lot of advantages by selling off their receivables. Most funding companies release funds in about one to two days. The funding companies also provide regular reports to update and enhance the billing process. The ready cash flow also increases the ability of the medical industry to get discounts from their suppliers for regular and timely payments. The capital can be rightly used to enhance services and stimulate growth by attracting and retaining a good support staff. The balance sheet will also have a positive effect, as accounts receivable financing is different from a loan. It just advances the cash that will otherwise come in after 30 to 60 days. It is just a conversion of a non-liquid asset, the account receivable into a liquid asset, cash. Thus the debt capacity of the medical institution also remains strong.
