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Understanding Medical Factoring: How It Works and Who Qualifies

Oct 18, 2023 • 6 min read
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      When running a medical practice, cash flow is often a top concern. Waiting for insurance companies to pay can cause significant delays in receiving payments for services provided. This is where medical factoring comes in as a potential solution.

      But what exactly is medical factoring? Let’s dive into the details.

      What is medical factoring?

      Simply put, medical factoring is a financial transaction where a medical practice sells its invoices or accounts receivable to a third party at a discounted rate. This third party, known as a factor, then advances the medical practice with immediate cash for these outstanding invoices. In return, the factor collects payment from the insurance companies on behalf of the medical practice.

      In other words, medical factoring allows medical practices to receive payment for services rendered immediately, instead of waiting for insurance companies to pay. This can help improve cash flow and allow medical practices to meet their financial obligations in a timely manner.

      How does medical factoring work?

      Medical factoring involves three parties: the medical practice (also known as the client), the factor, and the insurance companies. The process usually goes as follows:

      1. The medical practice provides services to patients and submits claims to insurance companies.
      2. The medical practice sells its outstanding invoices or accounts receivable to a factor at a discounted rate.
      3. The factor advances the medical practice with immediate cash, typically around 70% to 80% of the total value of the invoices.
      4. The factor collects payment from the insurance companies on behalf of the medical practice.
      5. Once the insurance companies pay, the factor deducts their fees and returns the remaining amount to the medical practice.
      6. The process repeats, as necessary, for ongoing cash flow needs.

      Who qualifies for medical factoring?

      Medical factoring is not available to all types of medical practices. Factors typically work with healthcare providers, such as hospitals, nursing homes, home health agencies, and physician practices.

      In addition to the type of practice, factors also consider the following criteria when determining eligibility:

      • The total amount of outstanding invoices
      • Average claim size
      • Payment terms with insurance companies
      • Length of time in business (usually at least one year)
      • Creditworthiness of the medical practice

      Factors will also assess the collectibility of the invoices and may require a certain percentage to be insured against non-payment. This is known as medical receivables financing.

      Benefits of medical factoring.

      Medical factoring offers several benefits for medical practices, including:

      1. Improved cash flow – By receiving immediate payment for services rendered, medical practices can improve cash flow and meet their financial obligations in a timely manner.
      2. No debt – Medical factoring is not considered a loan, so there is no debt incurred by the medical practice. This can be beneficial for practices with existing loans or those looking to avoid taking on additional debt.
      3. Flexibility – Medical factoring allows medical practices to choose which invoices to sell, giving them more control over their cash flow.
      4. Faster payments – Factors have the resources and expertise to collect payments from insurance companies in a timely manner, which can help medical practices avoid lengthy delays in receiving payments.
      5. Reduced administrative burden – By outsourcing the collection of payments, medical practices can save time and resources that would otherwise be spent on managing accounts receivable.

      Medical factoring can be a valuable tool for medical practices struggling with cash flow issues. However, it is important to carefully consider the fees and terms associated with different factors before choosing one to work with.

      Factoring Medicare and Medicaid claims.

      Working with Medicare and Medicaid can often be a complicated dance for medical practices. These government insurance programs are known for their lengthy payment cycles, which can significantly impact a practice’s cash flow. But, did you know medical factoring can offer a solution for this too? Absolutely!

      With medical factoring, practices can sell their Medicare and Medicaid receivables to a factor, just as they would with private insurance claims. This means you don’t have to wait for these programs to remit payment. Instead, you’ll get an advance from the factor, typically around 70% to 80% of the claim value, providing immediate cash flow relief.

      However, it’s essential to be aware that factoring Medicare and Medicaid claims requires a sound understanding of these programs’ unique rules and requirements. Factors with experience in these claims have the know-how to navigate the complex landscape and can help your practice receive payments quicker, relieving the financial pressure that comes from slow-paying insurance claims.

      While medical factoring can provide an effective solution to the cash flow challenges posed by Medicare and Medicaid’s slow payment cycles, it’s still important to consider the associated fees and terms to ensure they align with your practice’s needs and financial capabilities.


      Medical factoring is a financial tool that can provide immediate cash flow relief for medical practices. By selling outstanding invoices at a discounted rate, factors can provide medical practices with immediate funds to meet their financial obligations. However, it’s crucial to carefully consider the fees and terms associated with different factors before making a decision.

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      About the author

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