What Is Third-Party Billing?

K.C. Bruning

Third-party billing is billing undertaken by a company other than that which provided a product or service. These companies can work on behalf of individuals or provide services for an entire organization. Services can include invoicing, payment, or other tasks related to billing and claims submission. This kind of billing is especially common in the medical and academic fields.

In third-party billing, a company other than the one that provided the service tabulates costs or provides other billing services and issues an invoice.
In third-party billing, a company other than the one that provided the service tabulates costs or provides other billing services and issues an invoice.

A third-party billing company can provide assistance in any area connected with invoicing. Common services include coding and arranging for insurance reimbursement. The third-party billing service can manage all aspects of the billing or simply handle a few of the more complex details. The service offered depends upon the size of the company and the complexity of the invoicing.

Another use for third-party billing is in instances where a bill must be split. This is particularly common in rental properties where the utilities bill or other similar costs are shared by tenants. For example, a landlord receives a bill for utilities from a municipality and sends each tenant his or her share. Then the tenants submit their payments to the landlord who then pays the municipality.

In order to protect consumers, some governments have laws which regulate the way third-party billing works. Common requirements include detailed billing, informing the client of any changes to billing, and limitations on the kinds of services that can be billed using this method. Often the terms for third-party billing must be outlined in a written contract before such an agreement can be made legal. The primary purpose of most regulations is to ensure that clients are not being overcharged or otherwise misled.

Third-party billing companies come in a wide array of sizes and offer several different kinds of services. The smaller organizations tend to offer only processing services and are primarily a means of outsourcing work. Larger companies may offer more complex or specialized billing preparation or handle submitting claims to insurance companies. Some organizations also provide billing consulting services.

The variety among third-party billing companies can make picking a service a complex task. Clients must research their options carefully in order to ensure that the company they choose is not only reputable, but offers the specific services they need. Governments must handle the task of regulating companies in an industry where the structure of and services offered by each business is extremely diverse. Fraudulent billing is a particular concern as it can be more difficult to detect with so many parties involved in the process.

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