Cash flow problems can plague every type of business. For healthcare businesses that are new or undergoing rapid expansion, cash flow issues are especially likely. This is because of the nature of medical payments. Many medical insurance claims take a long time to process, meaning that your practice might not see the money you’re owed until several months after the fact. Medical factoring is one thing that can help with this type of cash flow problem.

The Difference Between Physician Loans and Medical Factoring

A physician loan is a type of loan that’s available specifically for doctors. Most of the time, a physician loan is a one-time loan that you can pay back month by month. Experienced doctors with established practices can often take out larger physician loans than smaller, newer practices can. Doctors who specialize in certain areas may also have an advantage when it comes to getting a loan.

Medical factoring, on the other hand, gives you an advance on the money that’s already owed to your practice. This is important because it ensures you won’t have to wait 30, 60, or even 120 days to receive your payment from insurance companies. Many practices would find it difficult to remain in operation with such a long delay between treating a patient and receiving payment for the visit.

To make factoring work for your practice, you’ll need to work with a company, or factor, that provides this service. There are a wide variety of factoring companies, so it’s essential to do your research and find the one that fits your needs. You transfer your insurance claims to the factor, making them responsible for collecting the payment. The factoring company advances the majority of the claim, typically 80%, to your practice. You receive the rest of the money after the claim is paid.

When Does Factoring Make Sense for Your Practice?

Factoring is probably the best option for your practice if you have ongoing cash flow problems from claims that are slow to pay. If you’ve just opened up your practice, factoring can keep your cash flow steady as you grow. The same is true if you are working on expanding your practice. A physician loan is better for situations where you need to cover a one-time expense.

Another benefit of factoring is that you don’t need to worry about coming up with the cash to pay anything back. It’s an advance on money that you are already owed. Essentially, your practice is just getting paid more quickly than you would otherwise, although you’ll need to pay a percentage to the factoring company. This makes medical factoring a less stressful option than loans for new and growing practices.