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Frequently Asked QUESTIONS
1. What is Factoring?
Commercial insurance and government program healthcare factoring is the act of selling your accounts receivable to a factoring company (factor) for a predetermined percentage of the value. Businesses who factor no longer have to wait the 60-90 days for insurance carriers to make payments. The factor advances up to 85% of the invoices’ value within a few days of receiving the charges while the balance is held in a Reserve account. When those invoices are paid in full,
the remainder of the Reserve is returned to the business, minus the factoring fee. Factoring is an alternative financing option that can help companies just starting out, or businesses that are more established and require predictability of their cash flow.
2. How will factoring invoices help my business?
Many businesses choose factoring because it allows them to receive fast financing with zero debt added to their balance sheet. Steady and predictable cash flow from factoring enables companies to weather seasonal highs and lows, slow paying customers, unexpected growth.
3. Will factoring invoices look bad to my customers?
No. Factoring has been around for many years and is one of the most acceptable business methods to help increase your business’s cash flow. In fact, working with a factoring company means the factor thought your business was solid… the fact that your business qualifies for this 'credit line' makes a strong positive statement. Receivables-based financing is used by many of the largest corporations in the world to improve cash flow, support growth, and increase profits.
4. What is the difference between Recourse Factoring and Non-Recourse Factoring?
Non-Recourse Factoring means that if a commercial insurance company or government healthcare program doesn’t pay, the Factor absorbs the loss. Recourse factoring is less expensive than Non-Recourse factoring, but businesses are required to buy the invoice back if it goes uncollected for a fixed number of days outlined in your factoring agreement… typically 120 days. Laguna Commercial Capital is a Recourse factor.
5. What if my customer doesn’t pay their bill?
If the commercial insurance company or government healthcare program hasn’t paid the invoice at 120 days, the buy-back provision in the factoring agreement kicks in. Those invoices not paid at 120 days would be bought back, typically using a portion of the cash built-up in the Reserve account.
6. How often can I factor invoices?
If you have unpaid invoices aged under 90 days, and want to factor them, a factor can fund you on your timeline. Factoring is a type of business funding that grows with your company.
7. If my credit history isn’t great, will that affect my ability to factor?
Because your customers are responsible for paying the outstanding bills, we look at your customers’ credit-worthiness when deciding if your company is a worthwhile risk. Your personal or business credit history really has very little effect on whether or not your business qualifies for factoring.
8. How long does the invoice factoring process take?
For first time applicants, approval usually takes 3-5 days, with a cash turnaround of 24 hours or less, once the initial set-up takes place. While your business receives most of the cash value for your invoices upfront, the time it takes to receive the remainder relies on how long it takes your customers to pay their bill to the factor.
9. What is used as collateral?
The invoices that make up your accounts receivable are used as collateral. No debt is added to your balance sheet because of this.
10. What type of receivable is acceptable?
Any valid invoice for healthcare services already performed that has not been pledged to another entity.
11. Are government receivables acceptable?
12. Can we qualify even if we are just starting in business and have no credit history?
Yes, if you have creditworthy customers.
13. How long is your contract?
We typically have a 1-2 year agreement. This ensures that the discount fees remain static so there are no surprises.
14. Is the purchase of receivables considered a short or long term solution?
Medical factoring could be both depending on how it is utilized. It provides an immediate infusion of cash, which solves the immediate crisis of poor cash flow and provides for regular cash flow throughout the course of the year.
15. What size of practices do you typically fund?
Our preferred size practice bills from $50,000 to $1,00,000 per month.
16. What types of practices to you factor?
Physicians, private practices, group practices, clinics, DME providers and other providers within the medical arena. We now purchase receivables for dentistry, chiropractic, pharmacies, Rehab centers and pretty much any medical provider that bills commercial insurance and Medicare.
17. Do you take over the billing function within my practice?
Your billing and collections functions remain under your control. The only thing that changes is the payment remittance address, which is typically a lockbox location.