It can be challenging for medical practices of any size to maintain a steady cash flow, but it can be particularly difficult for smaller practices looking to grow. While patient co-pays may cover daily operations, there often isn’t much left over to invest in growth. Waiting months for payments from the insurance companies can leave a small practice with very little working capital. Fortunately, there are various funding options available. Some are specifically geared toward medical practices such as doctor loans and medical factoring, but how do you decide which is the best solution to achieve the goals you’ve set for your practice? When trying to choose between the two options, it helps to understand the difference between a doctor loan and medical factoring.
A doctor loan, sometimes called a physician loan, is a funding option offered by many traditional financial institutions. There are a couple of different types of doctor loans. The first is a structured loan. This type of doctor loan provides the full amount applied for if approved and requires equal monthly payments. Some financial institutions also offer doctor loans that are structured like a line of credit. This provides doctors with access to cash as they need it with payment terms similar to that of a credit card.
These loans can be beneficial when you’re trying to grow your practice or when experiencing a shortfall in working capital. Doctor loans are typically subject to a maximum cap. This cap varies depending on the number of years you were in training and how many you’ve been in practice. Some institutions may take your specialty into consideration as well.
Medical factoring is a form of invoice factoring geared toward the medical profession. It is designed to alleviate stress and cash flow inconsistencies caused by the slow payment of insurance claims. Medical factoring provides practices an advance on those claims, improving your cash flow and allowing you to do more than just cover daily operating expenses. Because factoring is structured differently than a doctor loan, you may be wondering how it works.
Having the insurance company approve claims and determine how much they will pay is only half the battle. You can still wait for months to receive payment. With medical factoring, you sell unpaid, approved claims to a factoring provider for a percentage of their net value, normally between 70 to 90%. Payments of those claims are then paid to the factoring provider. On the claims have been paid the factoring provider will send you the balance of those claims minus a small fee. Like doctor loans, medical factoring usually has a maximum cap. This is based on the amount you bill monthly and is structured to increase automatically as your practice grows
Doctor loans and medical factoring can both eliminate the stress and inconsistencies in cash flow caused by the slow payment of insurance claims. So, how do you decide? Ultimately the choice is up to you but here are some things to consider.
If you need funding to cover a smaller, one-time expense, say $100,000 or less, you may be better off securing a doctor loan. This type of funding is better suited to practice expansions or equipment upgrades. It’s not the best choice to generate revenue from unpaid insurance claims.
Medical factoring can be the most effective funding option for cash flow issues caused by the slow payment of medical insurance claims. Factoring allows you to receive a majority of that revenue in advance without taking on additional debt.
Still not sure which is the best choice for your practice? Then it’s time to consult with business funding professionals. CapFlow Funding Group specializes in factoring for a wide variety of industries including medical practices and healthcare facilities. We will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.
While there are many factors to building a successful business, having sufficient working capital is key. Defined simply as the difference between a business’s current assets and its current liabilities, working capital is what keeps a business running. It covers payroll and daily operating expenses so it’s important for a business to maintain a positive flow of working capital. For small businesses experiencing growing pains, this can be a challenge. It is not uncommon for them to sometimes need an influx of short term working capital.
There are a variety of reasons a small business might find themselves in need of additional capital. For some seasonal businesses, cash flow will fluctuate throughout the year. In the offseason, they can find themselves on the verge of depleting their working capital. Business owners experiencing unexpected growth or taking on expansion can find themselves in a similar situation. Significantly reducing or depleting working capital can leave a business vulnerable, resulting in the inability to properly provide products or services to their customers. In some cases, a lack of sufficient working capital can cause a business to shut down permanently.
In addition to facilitating business growth and allowing business owners to cover their daily operating expenses, access to short term working capital funding can provide many other advantages.
Business Solvency – Consistently having sufficient working capital allows a business to operate uninterrupted. It will allow them to replenish the inventory and raw materials needed to maintain a proper inventory. This enables them to provide quality products and services on schedule, creating a positive customer experience.
Maintain Daily Operations – Nothing will bring a business to a grinding halt faster than being unable to meet payroll. This will deflate morale and cause some of your best employees to seek employment elsewhere. In addition to the added expense of hiring and training new employees, existing employees could end up working for one of your competitors.
Reputation of reliability – Access to short term working capital funding allows a business to make prompt payments and keep their accounts current. This will create goodwill with suppliers and vendors while building mutually beneficial relationships.
Secure Discounts – Cash is still king! Many suppliers and vendors will offer discounts for cash payment. Even if it is a small percentage, over time with multiple vendors, the savings can add up.
Take Advantage of Favorable Market Conditions – Market prices on raw materials can fluctuate. It‘s to a business’s advantage to purchase supplies in bulk when the prices are low. Having access to short term working capital funding allows businesses to take advantage of these lower prices without depleting their existing working capital.
Survive the Unexpected – Even if a business has a sufficient level of working capital to maintain daily operations, it probably won’t be enough to handle a crisis. Broken equipment, a sudden downturn in business and various other unexpected emergencies can cripple a business. Having access to short term working capital funding can allow a business to ride out a crisis and keep it moving forward.
Cultivate New Business – Taking on bigger accounts and filling larger orders can initially be a drain on a business’s existing working capital. However, being able to handle this increase in business without missing a beat is essential to business growth. Short term working capital funding can make that happen.
CapFlow Funding Group offers working capital solutions to quickly provide the funding you need to grow your business. We work with business owners across various industries to find the best working capital solutions to their businesses on track. CapFlow specializes in invoice factoring and offers merchant cash advances. We also partner with other funding providers to secure the funding option that best fits your business needs. Our team will work tirelessly to see you through to success. Contact us today!
