The opportunity cost of Accounts Receivable sitting on a healthcare organization's books rather than working for the organization in the form of cash can be high. Turning your organization's non-liquid assets into cash allows it focus on service while maintaining financial prudence. As discussed in previous blogs (Accounts Receivable Financing or Asset-Based Lending) there are many ways to turn accounts receivable into cash. Medical Receivables Factoring is one of the ways. Definitionally, Medical Receivables Factoring is "the selling of a medical company's accounts receivable, at a discount, to a factor, who then assumes the risk of the account debtors and receives cash as the debtors settle their accounts." In a factoring arrangement, the lender becomes the main point of contact for collections. What this means for your organization is that the burden of collection is no longer yours, yet the cash from the services offered are available immediately for use.
How Medical Receivables Factoring Works1) The factor company purchases trade accounts receivable (invoices) for up to 85% cash immediately. The title to the accounts receivable then pass to the factor company who then begins collection of the invoice. While the fee and advance amounts are subject to the individual agreement, the way medical receivables factoring works allows a healthcare organization to essentially outsource its collection department and turn receivables into cash immediately.
Differences between Factoring and Traditional Asset-Based LendingOther forms of asset-based lending include using assets such as equipment, inventory, and purchase orders to secure loans. While these are effective ways to leverage your assets for cash, it is helpful to look at the differences between traditional forms of asset-based lending and factoring.
|Asset-Based Lending||Accounts Receivable Factoring|
|Good Financial Statements Required||No Financial Statements Required|
|Two Years TIB Minumum||No Minimum TIB|
|Good FICO Score Required||FICO Not considered|
|Personal Guarantees Required||No Personal Guarantees|
|Prime Plus 2-6%||3% for 30 days, 1% each 10 days after|
|60-90 day closing time||3-7 day closing time|