While some doctors take out specialized loans to help their new and struggling practices, those who want to avoid building debt should consider using medical factoring instead. This type of financing, which advances the bulk of revenue earned from medical claims directly to the facility before they processed by insurance companies, can help practices survive those first difficult months of operation when the flow of revenue seems uncertain and expenses increase quickly.

Medical factoring helps struggling practices build a cash reserve instead of debt because it is not a loan. Instead, a factoring company or other lender buys claims from the practice and then returns up to 80 percent of the net of those claims when they are filed. Once they are completed, the other 20 percent, minus a financing fee, is also returned to the practice. Because multiple claims can be sold and advanced at one time, new practices that are finding it difficult to make ends meet will have more cash in their reserves and avoid high finance charges that often come with taking out a loan.

Medical practices that are struggling due to cash flow problems may have to lay off staff and reduce their hours as a result. This can harm their reputation and cause problems for their patients, who will then have to seek medical care elsewhere. Medical factoring can help these practices by increasing their cash flow and providing them with steady revenue because they will not have to wait up 120 days or more for a claim to be processed. When cash flow increases and stabilizes, struggling practices will be able to revise their budget, pay their employees on time and provide their patients with the best of care.

Medical practices sometimes struggle during their first year because expenses mount much faster than revenue. When this imbalance occurs, using factoring can help restore it by providing the practice with a consistent source of revenue. It can be difficult to budget when incoming revenue is a slow and unsteady trickle; however, practices that use factoring can maintain a balance between revenue and expenses in order to promote growth because it provides them with a steady and predictable source of income.

Because every practice is different, doctors and facility managers should consider their business’ needs and goals before seeking out a medical factoring company. While this financing may not be the solution to every financial issue, it can be an effective tool for medical practices that are striving to survive and grow.