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Article: How To Finance a Fast-Growing Medical Practice

Although physicians train specifically to practice medicine and not necessarily to run businesses, many choose to become entrepreneurs and open their own medical practices. For many young doctors with heavy student loan debt, the challenge of opening a business may also increase their total debt load – leaving few resources to operate the business properly.

Fast growth creates cash flow problems

Although having a fast-growing, thriving healthcare practice can be a dream, it can also be nightmare if your cash flow is a mess and you are constantly missing important payments. Unfortunately, managing cash flow is not generally taught in medical school – but it should be taught, as it is the lifeblood of any business.

Most doctors’ offices have a common cash flow problem. They have short expense cycles: weekly payroll, weekly supplies, monthly rent, and so on. But they have long payment cycles, as medical insurance claims can take up to 120 days to pay. As a result, you may not see a penny for your hard work for up to three months. In the meantime, you still have to pay your expenses. And if your practice is growing very quickly, your expenses will grow quickly and come due before you see any revenues.

Unless you have a cash reserve, you will experience financial problems that, if mismanaged, could put your medical office out of business.

One way to solve this problem is to get a business loan or conventional business financing. Doctors have an advantage over most business owners in this area, as many banks are willing to lend them money. However, a business loan won’t always solve this problem. For many offices, a better solution is to use medical receivables factoring.

How does factoring work?

We offer a financing tool that allows you to turn slow-paying invoices into actual cash by selling them to a medical factoring company. The finance company pays you for the invoices and waits to be paid by the insurance companies. You get immediate funds – predictable cash flow that helps cover your business expenses.

The process is fairly simple. First, you must enter a funding arrangement. But once that is in place, your office sends its weekly receivables reports to the medical factoring company for processing and funding. The factoring company calculates the actual amount that is expected to be paid by the insurance companies and advances you up to 80% of that amount. The remaining 20% is held as a reserve and is used to settle billing discrepancies. Once the insurance company pays the claims, the 20% reserve is rebated, less the financing fee. The financing fee varies based on the amount financed and how long it took the insurance company to pay.

Fast-growing offices can qualify

Qualifying for medical factoring is relatively simple, at least when compared to conventional financing. Fast-growing offices can usually qualify as long as their books and processes are in order. However, because of the amount of work involved in setting up an account, most financing companies will only work with healthcare companies that have net monthly collectables of at least $30,000.

Terms usually get better as the business grows. Medical practices, testing centers, nursing homes, and medical supply companies with over $200,000 of monthly net collectables are in the best position to negotiate terms because of the complexities of insurance payment processing and the efficiencies that can be realized with high volumes.

Advantages of factoring

Factoring receivables has some advantages over other business financing solutions. The most important advantage is is that the financing is ongoing – you get funding as you bill insurance companies – creating a “cash-flow-on-demand” solution that improves cash flow. Unlike loans and lines of credit, this program has flexible limits based on your ability to invoice, making it an ideal growth tool.

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We are a leading factoring company and can provide you with a competitive medical factoring quote. For information, please fill out this form or call us at (877) 300 3258.

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