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Medical factoring is a process that involves working with a factoring company to purchase the accounts receivable of a medical facility. As with most factoring situations, the medical factoring partner agrees to purchase currently open items in the accounts receivables, with the understanding that all payments on those receivables will be remitted to the partner. When considering this as a means of generating income from receivables today rather than waiting for payments to be remitted, it is important to consider the terms of the working relationship, the amount of money that will be received on the front end, and what steps are necessary to end the relationship should the client wish to do so.
With medical factoring, it is important to understand that the partner does not tender the entire face value of every invoice currently open in the receivables. Typically, a percentage of that face value is provided up front, with most of the remainder passed on to the client once payments on those invoices have been remitted. A small percentage of that face value is retained as the fee for providing the factoring services. The goal is to identifying factoring partners who will offer the highest amount on the front end. Many will offer at least 80%, although some partners may go as high as 90% up front.
Also take into consideration the fee that is charged for providing the medical factoring. Some services will charge a fee as low as 3% of the total face value of the invoices that are factored, while others will charge a higher percentage. Typically, a service which provides a higher disbursement up front is likely to charge a higher fee. This is because the factoring partner is assuming a greater risk that some of those invoices may languish for months before finally being settled, leaving the partner out a larger sum of money in the interim. When and as possible, getting by with a lower disbursement up front and enjoying a lower service fee means more of the total value of those invoices eventually makes it back to the company coffers.
While medical factoring is a great way to get money now rather than later, many hospitals and other healthcare facilities find that at some point, they want to end the relationship with the medical factoring partner. With some, this means buying back any invoices that are currently outstanding before releasing the client from the arrangement. Others will allow the client to stop submitting batches of invoices, with the understanding that at the end of a specified period of time, such as 90 days, any old invoices that are still outstanding will be bought back. With the latter, the factoring company will aid the client in notifying customers to switch back to the remittance address of the client and away from the branded remittance address that goes directly to the factoring company.
Keep in mind that close scrutiny of the polices and procedures of the medical factoring company, as well as reading and understanding the terms of the factoring contract, is very important. Doing so will make it easier to determine which plan is in the best interests of the client, in terms of receiving money on the front end and paying the lowest possible fee on the back end. This will also help prevent awkward issues during invoice collection that could harm the reputation of the client and have an adverse effect on future revenue generation.
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