While the health-care industry is nowhere near the crisis mode that has hit other industries, there are changes going on now and bigger changes coming down the road. Just over the last few days, I have seen articles about possible changes to Medicare, addressing Medicare fraud, why more medical students are going into higher paying specialties rather than general medicine or pediatrics, and so forth. With the country’s huge debt issues, insurance companies and government programs are almost certainly going to have big targets on them.
For many health-care related firms, from clinics to care facilities to medical equipment manufacturers, this will likely mean changes in how and when they are paid. While reimbursements could decrease, it is even more likely that the time lag from when an invoice is submitted until it gets paid will lengthen.
Medical firms will mainly have three ways to address short-term cash flow issues:
1) Rely on the firm’s own financial reserves and dip into them as needed to pay expenses
2) Get a working line of credit from a bank or other financial institution
3) Use medical factoring as needed to fill the gaps and engender longer term results
If a firm is flush with cash, then choice #1 is usually going to be the most appropriate. If, like the majority, the firm doesn’t always have enough carryover cash, then one of the other two choices becomes preferable. Often, firms either cannot get lines of credit or loans, or are forced to deal with burdensome rules.
Medical factoring provides both advantages and disadvantages compared to loans. The main issue is that it is more expensive, at least from looking purely at the interest rate. However, medical factoring, also called medical receivables factoring, has positives that usually outweigh any negatives. For example, medical factoring is faster, simpler, and more flexible than other financing vehicles. Because it is not a loan, medical receivable factoring does not appear as liability on the company balance sheet.
Whether you are a sole practitioner, a large hospital, a medical equipment manufacturer, or anything in between, you would do well to learn more about this way of financing your receivables. Medical factoring can help firms to stabilize their cash flows to allow longer term growth and prosperity. Here is to your long-term success!