Medical Financing: Choosing Between AR Financing and Healthcare Factoring
In the healthcare industry, accounts receivables do not always provide timely payments to the respective healthcare practice. A healthcare facility may have cashflow issues for various reasons, including insurance claim denials and unnecessary write-offs. While many facilities receive a payment within 30 to 60 days of the service, this is not always quick enough to handle other financial obligations.
Medical financing is a solution for healthcare facilities to acquire cash quickly. In the healthcare financing sector, there are two main types of financing: AR financing and healthcare factoring.
What Is AR Financing?
AR Financing is more similar to a bank loan. This option will require you to put down various types of collateral, including your invoices, equipment and real estate to borrow cash as needed. Most of the time, you can obtain AR financing through brokers, banks and lending institutions.
To obtain AR financing, the lender will look at your hospital’s history and past collections to examine your accounts receivable. Once the company understands your billing and collection process, it will offer you a percentage of cash to be advanced against your accounts receivables. The line can revolve as your invoices increase and decrease during different times of the year. When a hospital receives AR financing, it is still responsible for collecting the debt from the invoices.
What Is Healthcare Factoring?
The other option is healthcare factoring. Healthcare factoring does not include a bank. Instead, you outright sell your invoices to an invoice factoring company at a discount. The factoring companies take your invoices and sell them to investors. In this scenario, the health system receives the advance and gives up the accounts receivable responsibility.
Once the facility sells the invoices, it no longer has to worry about collecting the debt. Instead, the facility has cash for other expenses and does not have to worry about debt collection.
Choose the Healthcare Financing Options Right for You
There are advantages and disadvantages to both forms of financing. You must examine your specific circumstances to determine which would serve your hospital. In general, factoring is more flexible and is easier to qualify for, but it also tends to be more expensive than traditional loans. AR financing, on the other hand, provides more affordability and an easier transition. Most hospitals and other medical facilities need help operating when they don’t receive payment for services. Financing and factoring provide an option for hospitals to maintain cash flow.