Medical Accounts Receivable Financing Best Practices

The world of healthcare is demanding. Sometimes, you must have "eyes in the back of your head" to manage everything, including the constant challenge of cash flow. This is especially true for providers dealing with significant claim amounts, such as specialty clinics and surgical centres.

Delayed reimbursements and tricky billing cycles can leave even the most efficient providers financially suffocated. Research indicates that accounts receivable represented a substantial 35% of assets within UK public healthcare institutions (Devalkar & Krishnan, 2019). This highlights the high financial stake these institutions have in their outstanding payments¹.

Thankfully, medical accounts receivable financing offers a solution. Think of it as a way to get paid now for the services you've already provided, turning those pending claims into readily available cash.

We'll explore how this financial tool can help your UK business to get paid faster and keep your practice running smoothly, no matter the complexity of your claims. And while you’re thinking about medical receivables financing, you should also look into Wise Business.

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How Does Medical Accounts Receivable Financing Work?

Medical accounts receivable, also called medical accounts receivable factoring, is a financial tool that allows healthcare providers to get immediate cash based on their outstanding medical claims. Instead of waiting for weeks or months to receive payments from insurance companies, government payers, or patients, providers can sell their accounts receivable (unpaid invoices) to a financing company (the factor) at a discount.

Here's a quick breakdown of how it works:

1. Healthcare providers bill insurers or government payers.
2. Instead of waiting for payment, they can use medical receivables financing.
3. A financing company advances a portion (e.g., ~80%) of the claim value upfront.
4. The payer reimburses the claim to the financing company.
5. The financing company collects the payment.
6. They deduct a small fee for their services.
7. The remaining balance is then paid to the healthcare provider.

Having cash at hand instantly can make a world of difference in the performance of healthcare facilities. It paves the way to invest, develop, and advance their resources. Although the provider still needs to bill correctly, the immediate funding mitigates the pressure of delayed payments and the need for constant follow-ups.

Running the Accounts Receivable AR Process in Medical Billing

Running the AR process in medical billing involves several key components. They all work together to ensure timely and accurate payments for healthcare services. Let’s take a look:

Accurate Data and Coding

Make sure to collect accurate patient info, insurance details, and medical codes right from the start. This helps avoid claim rejections and cuts down on rework. Checking insurance early also prevents surprise bills for patients. Correct coding ensures services are correctly reimbursed.

Efficient Claim Submission and Monitoring

Submitting clean claims electronically speeds up the payment process compared to traditional paper claims. Actively tracking the status of these claims with payers allows providers to catch and address any issues early, preventing delays. Also, using claim scrubbing tools helps identify and fix errors before submission, reducing the chances of claim denials.

Effective Payment Posting and Reconciliation

Accurately recording payments and comparing them to expected amounts is essential for identifying discrepancies. Timely payment posting ensures account balances are up to date for both payers and patients. Besides this, regular reconciliation helps spot underpayments, overpayments, and unapplied cash. Catching these issues early allows for faster resolution and helps prevent revenue loss.

Systematic Patient Billing and Collections

Generating clear statements and offering multiple payment options make it easier for patients to understand and pay their bills. Consistent follow-up on unpaid balances can help to reduce bad debt and improve overall collections.

Dealing with money flow doesn't need to be a problem. These days, medical businesses can get money based on their bills. Having a financial partner to help them get cash quickly is a significant advantage for staying strong and growing, especially when unpredictable.

Best Practices for Medical Accounts Receivables Financing

There’s no one-size-fits-all code for medical accounts receivable financing. It varies from one facility to another and relies on the current cash flow situation. Some practices that could help in this regard are:

• Pick the Right Partner: Choose a financing company that knows healthcare billing well and has good reviews. Make sure their fees are transparent and fair.
• Understand the Agreement: Read everything carefully before signing. Know how much money you'll get upfront and what the costs are.
• Keep Billing Clean: Make sure your patient information and billing codes are correct. This helps get claims paid faster, so you get more money through financing sooner.
• Send Claims Quickly: The faster you send out your bills to insurance companies, the quicker the financing company can give you money.
• Work Together: Keep the financing company in the loop about any big changes in your billing or with insurance companies. Good communication helps things run smoothly.

Because every medical facility is different, the best way to use AR financing is to make a plan that works just for you. When you think about those tips and use them your way, AR financing can help keep your finances strong and make your work easier. This will lead to more money in your pocket and more attention on caring for patients.

Challenges of Medical Billing Accounts Receivable AR Financing

Even though AR financing is a ray of hope amidst medical billing chaos, it comes with its own challenges. Understanding these beforehand can help to maintain a healthy revenue cycle. A few of those could be:

• Delayed insurance payments, as insurance companies may take weeks or months to process claims.
• High rates of claim denials or rejections due to coding errors, incomplete documentation, or eligibility issues.
• Because insurance companies don't always pay the same amount and their rules aren't consistent, it's hard to guess your future income.
• Old bills become less valuable, so financing companies might not accept them or will give you much less money for them.
• Receivables tied to patient payments (as opposed to insurance) are riskier and less predictable. This aspect makes them less attractive for financing.

Like most other strategies out there, the process of handling medical ARs tags along with its unique obstacles. Being mindful of potential setbacks and having a solid mitigation plan can help medical facilities make progress, regardless.

Example of Accounts Receivable Financing in Medical Billing

Reading all the information without a practical example may have dazed you a bit. Take a look at the following example to understand how the process works in real time:

A small NHS clinic in Manchester often waits 60-90 days for payment from the NHS trust after submitting patient claims. They use AR financing to manage immediate costs, like staff salaries and medical supplies.

Application of AR Principles:

They work with a financing company that is familiar with NHS billing. The clinic sends its approved patient claims to the company, giving them most of the money owed (around 85%) within a few days. Later, the financing company collects the full payment from the NHS trust. The clinic pays a small fee to get the funds faster.

Impact on Financial Management:

This immediate cash boost enhances the clinic's cash flow, allowing it to:

• Pay staff on time
• Quickly purchase medical supplies
• Invest in equipment upgrades without waiting for NHS payments
• Have more predictable finances, reducing the stress of waiting for reimbursements.

The information clearly reflects that AR financing lets the Manchester clinic access the money tied up in their pending NHS payments much faster. This leads to smoother daily operations and better financial stability.

Difference Between Medical Accounts Receivable Factoring and Medical Accounts Receivable Financing

Both medical receivables factoring and financing help healthcare providers get cash faster based on the money owed to them by insurance companies and patients (their accounts receivable). Instead of waiting weeks or months for those payments, they get an upfront fee.

But the way they work is a bit different. Before we explore the disparities more, remember the key difference between the two:

• Factoring = Selling your bills (they handle collection, sometimes risk).
• Financing = Getting a loan against your bills (you handle collection, usually all the risk).

Table Comparing Healthcare Factoring and Financing:

Feature	Medical Accounts Receivable Factoring	Medical Accounts Receivable Financing
What’s it like?	Selling your unpaid bills	Getting a loan/advance against your bills
Who collects?	The factoring company usually collects payment	You (the healthcare provider) collect payment
Risk of non-payments	Often (but not always) with the factoring company	Usually stays with you (the healthcare provider)
Control over receivables	Less direct control once sold	More direct control
Impact on your books	Seen as selling an asset	Seen as a loan or borrowing
Focus of the provider	Less on collection, more on patient care	Still responsible for collection efforts
Cost Structure	Often involves fees based on the invoice amount and time to collection	Often involves interest rates and fees

To sum up, medical receivables factoring is like getting quick cash by handing over your bills and the job of collecting them. On the other hand, financing is like getting a cash advance that you need to pay back once you get paid on those bills. The best choice depends on your facility's needs, risk tolerance, and how much control you want to keep over your billing process.

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FAQs - Medical Accounts Receivable Financing Best Practices

Here are some of the most commonly asked questions:

Is accounts receivable financing suitable for all medical practices?

Not necessarily. The suitability of AR financing depends on the practice's cash flow needs, the size of its AR, and the terms offered by different financial institutions.

How does AR financing in medical affect patient relationships?

Transparency with patients is key. Ensure patients know that the practice may use AR financing and how it might impact their billing or payment options.

Are there any risks associated with medical receivables financing?

Yes, potential risks include losing control over the AR, potentially higher fees compared to traditional loans, and the need for careful negotiation of terms.

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Sources used:

1. International Journal of Economics, Commerce & Management - IJECM
2. Health care funding - Health.org

Sources last checked on date: 04-Jun-2025