Financing 101: Factoring, Operating Lines of Credit and Pre-Funding
Dr. Michael Fossum, CEO, Nobility RCM
When assessing potential revenue cycle management (RCM) partners for your practice, understanding the additional services or enhancements a prospective partner can deliver is nearly as important as the billing solution itself. Since your RCM partner should be an extension of your practice, having the opportunity to align that partner with your other priorities will undoubtedly improve efficiencies and outcomes. For example, is your RCM partner willing to invest in your future by offering methods to infuse capital into your practice? Access to capital directly influences your current stability and your long-term financial health, so who better to provide financing than the partner managing your revenue cycle?
Financing options available to today’s practices can seem as complex and nebulous as navigating the massive index of insurance reimbursement codes. The right RCM partner should have the expertise to provide both transparency and clarity, so you can feel confident in the financial decisions you make.
Financing comes in numerous forms, and a common one is factoring. In simple terms, factoring is selling your Accounts Receivable (A/R) at a discount to a third party. Sometimes, the A/R will be used as collateral for a loan, and an interest rate will be assessed on the accompanying loan. The discount or interest rate, depending on the structure, is essentially the fee for getting cash sooner rather than waiting for patients or insurance companies to pay. Also, the factoring company will likely handle collections on invoices, which may reduce time and expenses for your office. However, this structure also separates you from interaction with your patients regarding collections, which could have an adverse effect on your relationships.
Another frequently used financing tool is an operating line of credit. Operating lines of credit can be secured through banks and other financial institutions or through private entities. In some cases, the RCM partner will provide financing for operating and expansion capital. Nobility’s Easy Credit program is an example of this type of financing. With Easy Credit, Nobility offers a competitive interest rate to a pre-approved client, and that client’s A/R is used as the primary collateral.
Pre-Funding is yet another option, though this program is exclusive to Nobility clients. With Pre-Funding, Nobility pays a client’s claims upfront at a pre-determined rate and collects from insurance companies afterward. Unlike other financing tools, no personal guarantee is required with Pre-Funding. This provides the client with 100% predictable revenue, month after month, to more effectively manage cash flow.
Your growth objectives will inform much of your financing decisions, but don’t assume you must take the traditional bank route to get the capital you need. An innovative and creative RCM partner can be your gateway to financial stability and freedom in all aspects of your practice.