Why is “medical factoring” a common practice by medical practitioners?

More doctors, nurses, and other health care providers are choosing medical factoring as a viable finance option. But why is medical factoring becoming such a common practice by medical practitioners, and what are the benefits of this type of arrangement. Let’s take a look at what medical factoring is all about.

Medical Factoring
Medical factoring refers to the sale of a health care provider’s accounts receivable (AR) invoices at a discount, in return for the immediate payment of cash. These are usually the accounts receivables for patients, as well as for third party government insurances and other insurance carriers. It is a finance option used by doctors and other health care providers to ease cash flow problems.

Medical factoring has become a common practice by medical practitioners, because of the several benefits:

  • The infusion of cash from medical factoring is used for ongoing business operations. It is often used for the purchasing of equipment, advertising, as well as for hiring personnel.
  • The medical practice eliminates the costs associated with handling collections, and also reduces the costs related to the processing of invoices. Collecting payment becomes the responsibility of the ‘factor,’ which is the company that purchases the AR.
  • Medical factoring is not a loan, as it involves the transfer of an asset. Since there is no debt, the transaction does not show up as a liability on the balance sheet.
  • The arrangement is flexible, as the medical practice can choose to make it a short term agreement.

The rising cost of health care provides unique financial challenges for some medical entities. Medical factoring has become an effective option to alleviate cash flow problems.

Contact Nelson Hardiman, LLP, Los Angeles, for assistance with medical factoring.   Call 310-203-2800 today to set up a consultation and learn more.

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