Medical Office Rent: Make Your Business Grow
Regardless of what industry pundits say, opening a medical practice can be both very rewarding and very lucrative. Of course, as with any business, medical offices have their own specific financial challenges. One of the biggest challenges for medical practices of all sizes is adjusting to the long payment cycles of private insurance providers and Medicare/Medicaid.
Although many medical practices can still qualify for a business loan or line of credit, many are finding that traditional banking products don’t always solve their cash flow concerns in the long term. Why? Well, traditional business loans have to be paid within a few years and lines of credit have fixed maximum limits.
Basically, neither product is very flexible and both are hard to get, unless you run a medium sized medical practice.
Medical receivables factoring (or medical factoring for short) is a financing tool that allows you to turn slow paying invoices into actual cash, by selling them to a medical factoring company. The medical factoring company pays you for them and waits to be paid by the insurance companies. It eliminates the slow payment cycle, reducing the payment time from 90 days to two days. This provides the medical office with the necessary funds to meet expenses, such as paying rent and staff. It also frees up capital to grow the business into new areas.
The medical factoring process is fairly simple. Once a factoring arrangement is established, your office sends its weekly receivables to the factoring company for immediate financing. The factoring company will calculate the actual amount paid by insurance companies (called the net collectibles) and advance you up to 80% of that amount.
If the lease period is too long, you could be locked into an agreement for an office that no longer serves your purpose. Leasing never builds up equity.
Setting up a factoring account can take a couple of weeks, mostly because the medical factoring company will need to perform their due diligence and audits. However, once the account is set up, the financing is continuous. You can usually get your claims funded within 24 hours of submitting them to the factoring company.
Leasing an office space is not for everyone, just as buying is not for everyone. Carefully consider your current and projected needs to find a solution that works best for you.
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