| When a commercial factoring company is deciding on | | | | diligence audit is to determine the advance rate that |
| whether or not to accept a new client, they perform | | | | is commensurate with the expected amounts that |
| due diligence. This includes doing a UCC search to | | | | will be paid. |
| determine if the receivables have already had liens | | | | Another purpose of a due diligence audit is to review |
| placed on them. They also investigate the credit | | | | the adequacy and competence of the billing and |
| standing and payment history of the potential client's | | | | collections system. Whether these functions are |
| customers. Those are the two main components of | | | | performed in-house or outsourced, the factoring |
| due diligence relating to a factoring engagement with | | | | company must know that there are not a lot of |
| service companies, manufacturers, wholesalers, and | | | | billing irregularities which cause the insurance company |
| distributors. | | | | to delay payments. The factor must also be assured |
| With medical invoice factoring, the funding source | | | | that there is quick follow-up in regard to collections. |
| must take due diligence to a much higher level. With | | | | Insurance companies are notorious for holding up |
| ordinary factoring, the amount to be received is | | | | payments for any reason, so it's critical that the |
| normally pretty clear. A sale of 100 widgets at $10 | | | | provider's staff react proactively to get any issued |
| each equals $1,000 and that is the amount the | | | | resolved in a timely manner. |
| customer will pay when the goods are accepted. | | | | The cost of a due diligence audit isn't cheap. A small |
| With medical accounts receivable factoring, the | | | | medical or dental practice will outlay a minimum of |
| situation is complicated by the complexities of billing. | | | | $2,000 and that represents the costs incurred by the |
| When a healthcare provider bills for a procedure, | | | | factor. Some funding sources charge a lot more, as |
| they probably won't receive the amount that is | | | | they view the audit charge as a profit center. The |
| invoiced. This obviously has important ramifications | | | | provider should weigh all costs associated with the |
| for the factoring relationship because the amount to | | | | factoring relationship to make an intelligent decision |
| be advanced to the client is based upon the | | | | about which company to work with. |
| expected net collectible amount. | | | | Sometimes the due diligence audit pays for itself |
| Because of this, the factoring company must do an | | | | because of the disclosure of billing mistakes and |
| extensive analysis of how much is expected to be | | | | coding errors. As most healthcare experts know, it |
| paid by each payor. Blue Cross may pay a different | | | | doesn't take too many miscodings to add up to a |
| percentage of gross billing than United Healthcare. | | | | significant amount of money. The factoring company |
| Medicare and Medicaid will pay a lower percentage | | | | will also report to management any deficiencies in |
| than insurance companies. The main goal of a due | | | | collections. |