Medical receivable factoring is a process a medical practice can use to quickly obtain available capital in exchange for its account receivables.
Many companies use factoring in order to bring money in early that it would otherwise have tied up in its account receivables. A company can sell its account receivables out to another company, called a factor, at a small discount of the total value of those receivables (the discount is about 2-10% of the full price of a given account receivable). The seller obtains immediate capital it can use for investments or other purposes, and so this can be an especially good option for a company that has an unforeseen emergency.
There are a number of different types of medical receivable factoring. Recourse and non-recourse factoring relate to what happens when a debtor doesn’t make a payment; confidential and informed factoring deal with whether or not the debtors know about the factoring and who makes the collections.
There are usually some account receivables that won’t get paid. Factors know this, and in order to guard against it they may want to have recourse factoring: if a customer doesn’t pay on an invoice, the factor will have the recourse of returning the invoice to the seller in exchange for a new one or a reimbursement. If the contract has non-recourse factoring, the factor won’t have this option.
In confidential factoring, the debtors are not told that their invoices have been sold to the factor, and in this case the seller will still make the collections on the accounts. If the medical receivable factoring is informed, the debtors are made aware of the company their accounts have been factored to, and the credit control is done by the factor.
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