Financing Medical Accounts Receivable
Managing the billing and collection process of medical accounts receivable is no easy task. Privacy laws, medical billing practices, and dealing with insurance companies can be very complex. Most medical institutions employ medical ar specialists and medical billing companies to help insure proper billing and collections.
Adding to the complexity of medical billing, is medical accounts receivable financing. Many businesses use factoring or ar financing to support their cash flow and working capital. When you have a complex billing process it is important to work with a lender that understands medical billing and medical ar financing.
We will talk about the ins and outs of medical accounts receivable financing below. You will learn what it is, how it helps your business, and where to go for the best medical receivables financing programs.
What is Medical Accounts Receivable Financing?
Medical accounts receivable financing involves borrowing against the collectible portion of your open accounts receivable. The medical billing world is very complex. A medical ar specialist will look at past collections and current open accounts receivables to determine an appropriate advance amount against your open invoices. This money can then be used to pay bills, operating expenses, or for supplies.
The complexities around this type of business loan stem from the nature of medical data. With privacy laws and strict insurance practices it’s more challenging than funding regular commercial invoices. Unlike regular factoring, verifying accounts receivable is much more challenging with medical ar.
The benefits of Medical Accounts Receivable
Medical accounts receivable financing has a lot of benefits for your medical or healthcare business. Those benefits include:
- Improved cash flow
- Consistent working capital
- Greater cash availability than most loans
- Some vendors will offer early pay discount when paying for supplies, services, and even bulk medications for specialty pharmacies. Utilizing medical receivable financing can free up the cash to make those early payments to your vendors.
How to Finance Your Medical Accounts Receivables
Despite how straightforward the process is, many medical professionals are not familiar with how medical accounts receivable financing works. Nevertheless, we will be explaining the process in detail.
A lender will look at your past collections and review how you manage your accounts receivable. If you work with a medical receivables billing company or have internal medical ar specialists, they will provide reports to the lender to help them understand how billing and collections is managed.
Once the lender understands how your company bills and collects, they will offer a certain % of cash to be advanced against your open medical receivables. The line will revolve over time as your invoices go up and down with busy seasons and payments from insurance and other customers.
Here is a step by step outline of the process:
- Find the lender you want to work with and go through the onboarding process.
- Lender in these scenarios will typically set up a controlled account. Unlike regular commercial invoice factoring, many insurance companies won’t pay to a 3rd party. Therefore, you keep the account in your name but it may be controlled under a DACA(deposit authorization control agreement), or other method.
- At predetermined periods you will present your AR aging to the lender.
- Lender will review for accuracy and calculate the cash advance amount. The calculation looks like this : (Total open AR – ineligible AR) X Advance Rate = Cash Advance Rate
- Afterward, the agencies pay into the lender lockbox, the availability of funds is recalculated as needed and paid out to the client.
Who is eligible for medical accounts receivables financing?
There are a lot of different types of organizations that provide medical services and invoice insurance companies. Each of those organizations can be eligible for medical accounts receivable financing. Meanwhile, below is a list of the main types of entities that we see utilizing these financing programs.
- Specialty Pharmacies
- Home Healthcare Agencies
- Healthcare groups
When a medical services or supply business is in need of working capital, medical accounts receivable financing is a great way to solve that problem. Most factors and other lenders will not fund medical businesses. Medical invoicing and billing is a complex process and financing those invoices requires a specialized firm who understands how it all works. Reach out to a Star Funding representative today to learn more about how we can help.
What does it cost?
There are a lot of variables when it comes to leveraging your medical AR for working capital. Accordingly, we can only provide a range of pricing. The costs of financing your medical receivables should range from 0.75%-2% per month. Factors that go into pricing include time in business, projected factored volume, and overall business credit. Therefore, a clean business with high volume will get better pricing than a new business that has poor record keeping and other outstanding loans.
Pro Tip: Go in organized. Present yourself as an organized and informed business owner when speaking with a lender. A lender will work harder to win your business if you are organized. It is easier to work with clean data and thorough books and records. So, take your time to organize and show the prospective lenders your best stuff.
How much financing can I qualify for?
Your account representative will look at past payment history from your customers and determine your cash advance rate. If you have a strong history of collecting maximum amounts from insurance, medicare, and medicaid then you will qualify for a larger advance.
Some medical industries are known for getting only a fraction of their AR paid by insurance. Consequently, fields are much more challenging to work with since the invoice advance will be much lower.
The good news about financing your medical accounts receivable is that the facility will grow with you. As your practice increases revenue, the factoring facility will expand to meet your cash flow needs. Your advance percentage stays the same, but availability increases with more invoices. This is a better option than a line of credit that may stay the same over time.
Are you ready to get started?
Get started with financing your medical business today. Qualify for same day approvals and be funded within days. Visit our online application to get started.