Invoice Factor for Health Care Businesses
The health care industry has taken a major hit due to the recession. Revenue has slowed to a trickle, and many people have lost their jobs and their health insurance. As a result, the number of patients choosing elective surgeries and other procedures has gone down immensely. As if that were not enough, Medicare has lowered reimbursement rates, while insurance companies are taking longer to make payments. It is becoming increasingly difficult for health care providers to bring in working capital to their clinics and hospitals. With all of these factors playing against health care providers, many are turning to medical invoice factor providers for the cash they need.
Even though invoice factor has been around for quite some time, the medical and dental industries are just waking up to the benefits of this financial tool. Since medical invoice factoring is relatively new, only third party billings are accepted. These include state and federal government-sponsored programs like Medicare, Medicaid, insurance companies, and other state programs. Unfortunately, patient liabilities like deductibles and elective surgeries are not factored.
Medical invoice factor involves selling third party receivables at a discount. In general, the hospital, clinic or health care provider receives a cash advance of 75% to 85% of the net collectible value. This amount is wired to the health care provider’s bank account. The balance of 15% to 25% is kept as the reserve and held back till payment is received from government agencies or insurance companies. The factoring fee is deducted from the reserve.
In order to procure medical invoice factoring services, the health care provider will have to provide information that includes basic details about the practice, financial statements for the past two years, a current third party accounts receivable aging report, and an LLC operating agreement. If the company approves the practice for factoring, a letter of intent (or “term sheet,” as it’s commonly known) will be issued. This document will contain the terms and conditions of factoring, including the fee percentage per thirty days, the advance rate or cash advance receivable, and the cost of due diligence audit. If these terms are acceptable to the health care provider, they may then sign the letter of intent and submit it to the factoring company, along with a check in the amount of the due diligence audit.
