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Some Problems in Financing Medical Accounts Receivable

By Orkhan Ibadov

Republish: EasyPublish™ Published: 28Jan2012 Word count: 569 Viewed: 72 time(s) Get Free Content For Your Site

The medical business is an altruistic endeavor. It helps many people in their times of needs, especially during sickness. There are also times when the business must accept patients even if there is no ready cash available that is transferred to the account of the medical institution. In most cases, the medical payments of patients come in the form third parties like health insurers and other insurance companies. When the service to a patient is already rendered, the receivable from the insurance companies become automatic. This is called medical accounts receivables. Medical account receivables are treated as assets of the medical business. Despite the fact that it is cash, it is treated as equivalent to cash in the accounting world. However, these receivables cannot be used for transactions that require cash, such as purchases of materials and equipment. The medical institution resorts to financing medical accounts receivable to convert the receivables into cash or money.

The business of financing means providing the necessary cash to a business in order to improve cash flow. It is a risky job in the sense that it is like a loan. Financing may or may not include collateral. A financing set-up with no collateral is riskier than one which has collateral to back-up the money given. In the case of financing medical accounts receivable, this set-up is in the form of financing with collateral. The collateral for the money given is the medical accounts receivable.

Like any business, medical institutions need liquidity and a reliable cash flow to sustain the business. A normal cycle of a medical business would require the payment of salary, purchase of supplies and payment of operating expenses. However, since incurring accounts receivables are inevitable in the business, medical institutions need other sources or financing to support their liquidity. Financing medical accounts receivable is basically the main source of funds of medical institutions. The financing business is very important to enable these institutions prevent disruption of their normal business cycle.

Financing medical accounts receivable is not a safe venture. It is risky because the collection of the money parted depends on several external factors. These factors are:

• Nature of the accounts receivable
• Processing requirements of the receivable
• Capability of the third party to satisfy the receivables

One problem in financing medical accounts receivable is that accounts receivables, by nature, varies. Some may come from the patient itself, or an insurance company, or a private company, not necessarily in the insurance business. There is a need to classify the nature of the receivables because, in this manner, the financing business can assess the risk it will take in dealing with the medical institution.

Another problem is the processing requirements of the medical accounts receivable. The period needed to get the money back subject of the receivables depends on how long and how complex the processing procedure. For example, it may take some time for the financing business to recover the money parted if the processing procedure is very complex. Finally, the financing business is also exposed on the risk of failure to collect because the party required to satisfy the accounts receivable has no capability to pay the same.

Despite these problems, financing medical accounts receivable is a very important business because it supports the altruistic mission of medical institutions.

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