How to Fund a Hospital with Invoice Factoring
Hospitals are some of the most highly patronized businesses in the world. At some point or another, everyone needs the services provided, making hospitals one of the most stable companies in the country. However, stability doesn’t equal profit at all times. Billing processes with insurance companies and individuals can make collection efforts lengthy, making cash flow an issue. Expenses are high in hospitals between payroll, equipment, medicine and insurance. Thus, not getting paid for services for six months can be a substantial financial strain. Many hospitals utilize health care factoring to operate appropriately.
The Basics Behind Factoring
Businesses such as hospitals have a massive invoicing system. These invoices have to go through a lengthy process before payment is rendered. Because hospitals deal with insurance companies, these payments may be delayed. The typical turnaround time for payment to hospitals is 180 days. That is six months of not receiving payment for services rendered.
In this type of business model, factoring can be the best way to get paid within a reasonable time. The hospital sells invoices to a third-party, called the factor. The factor typically pays about 75 percent of the total value of the bills, then turns around and collects 100 percent.
The Benefits of Factoring for Hospitals
Health care factoring can be a literal lifeline for hospitals. Utilizing this system gives hospitals reliable and predictable cash flow. Before factoring, account receivables used to stay in-house and collection was slow and sporadic. It became difficult to predict how much money the hospital would have in the bank at any given time. The solution of selling off invoices to be collected on by third-parties gave facilities the ability to make regular loan payments, meet payroll and facility expectations among other things.
There may come a time where a hospital needs to replace large and expensive pieces of equipment above and beyond what has been projected or budged. In these cases, a factor may advance the facility more money to give it the cash needed to make significant investments. The over-advancement of funds is done on a case-by-case basis and typically means the factor provides the hospital with 80 or perhaps even 85 percent up front. The rate and terms are dictated by the factor and the relationship with the facility.
Hospitals are essential businesses that need to be able to remain open and fully functioning. Health care factoring is one way that these facilities can operate consistently and provide the level of care necessary for patients.
