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What is Medical Factoring?

Medical factoring helps companies that bill private insurance companies, Medicare, or Medicaid, and have cash flow problems due to slow payments. This type of financing is commonly used by healthcare providers and medical professionals of all specialties.

What problem does medical factoring fix?

One of the greatest challenges for companies in the healthcare industry is the length of time it takes to get a claim paid. Unfortunately, few medical claims are paid quickly. Instead, most medical insurance claims take 30 to 120 days to pay. This delay can create cash flow problems for providers because few can afford to wait that long for payment.

This problem can affect healthcare businesses of all sizes. However, it predominantly affects new companies and those that are growing quickly.

How does medical factoring work?

Medical factoring solves this problem by providing you with quick payments for your medical claims. Transactions are simple. You sell and assign your claims to a medical factoring company. The finance company advances funds for the claims and holds the claims until maturity. The transaction settles when the insurance carrier pays the claims.

Generally, transactions work as follows:

  1. You submit your approved claims to the factor

  2. The factoring company advances up to 80% of the claim

  3. The claim is paid in 30 – 120 days

  4. The factor rebates the remaining 20%, less the financing fee

The amounts advanced (in step 2 and step 4) vary based on the size of the business and the size of the claims.

Financing is based on net claims

One important detail about medical factoring is that transaction is financed based on the net payment of the claim. The net payment is the amount that the insurance will actually pay for the claim. In some instances, this amount may vary from the gross invoice amount.

Handling Medicare and Medicaid claims

Financing Medicare and Medicare claims requires a special procedure since they cannot be assigned like conventional medical claims. Most, but not all, medical factoring companies can process Medicare and Medicaid claims.

Medicare and Medicaid claims are usually handled by using a special type of bank account called a sweep account (also known as a control account). The exact process varies by company.


The most important advantage of medical receivables factoring is that it can fix cash flow problems created by slow-paying insurance companies. This common problem affects many healthcare businesses that are growing quickly.

Additionally, medical factoring is a flexible type of financing. The line can adapt to your business and grow, or shrink, as needed. This flexibility allows you to control your cash flow and your financial costs. Few products offer this flexibility.

Who can use medical receivables factoring?

This solution can be used by any business that bills private or government insurance programs. Some examples include:

  • Medical offices

  • Hospitals

  • Nursing homes

  • Hospices

  • Medical supply companies

  • Diagnostic imaging centers

  • Surgery facilities

  • Pharmacies

  • Rehab clinics

  • Home health care agencies

  • Medical staffing agencies

Evaluating medical factoring companies

Finding the right medical factor for your business requires some diligence. Most medical factors have specialties and have different capabilities. For example, some companies specialize in opportunities of a certain size. While others work only with certain types of healthcare businesses.

The best approach is to interview a few providers to ensure they meet your criteria.

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