How Medical Receivable Factoring Can Save Clinics

Talk to any medical doctor doing private practice these days, and they’re going to tell you that times are tough. That may not seem so for the Mt. Pleasant clinic in Michigan, which was awarded $707,167 in federal funding under the Affordable Care Act. Unfortunately for the rest of us, the $5 million slated for funding for Michigan is only for 8 new health center sites in the state.

The scenario many health care clinics can relate to is the one that’s now affecting the Ellsworth Free Medical Clinic, which may not be able to keep its doors open for the rest of the year. It was in the same situation last year, but $45,000 in donations prevented it from folding up.

If closure is an unpalatable but still very likely result for your clinic, you may be able to stave it off by getting an additional source of funding. But if the banks won’t help and donations aren’t forthcoming, then there’s still another hope: medical receivable factoring.

How It Works

Medical receivables factoring is a bit more complicated than the usual process of factoring. Here there is a third party that must be accounted for—the insurance company. This can be Medicare, Medicaid, or a private insurance company.

As the medical provider, you send your bill to the insurance company while you also give a copy of the invoice to the factor. The factor then buys the invoice from you, and in return you get a large percentage of the value of the invoice. The percentage may differ depending on the factor you choose to work with, but an 80% advance is typical.

The 20% is held back by the factor as a reserve, because as you know the medical insurance company may refuse to pay part of the bill or it may pay later than you expected. When the factor gets the payment from the insurance, it then gives you the rest of the payment minus the factoring fees and any penalties for late payment.

Because of this process, you really need to make sure that you only choose among experienced medical factoring companies. Not all factoring companies will chose to work in medical receivable factoring because of the inherent uncertainty of dealing with insurance companies.


The cost of this type of funding can be more expensive than a traditional bank loan, but medical receivable factoring does have its advantages. You can get the funding you need because the factor doesn’t really care about your credit score, and the application process is faster than with a traditional bank loan application.

With the money you have, you can then meet your payroll obligations and pay the salary of your administrators, nurses, and other doctors. You can buy the supplies you need in the clinic such as gloves and bandages. You can even use the money you have to invest in better medical equipment so that you can provide better medical service to your patients.

You don’t have to close down when you’re having working capital problems in your clinic and your bank or donors can’t help. You still have medical factoring companies standing ready to provide their own brand of emergency services.

How It Works with Banks and Factoring Companies

If you need additional financing for your business, the first thing you need to do is to take stock of your current situation. For that, you need to ask yourself several important questions which will give you a better idea of which financing solution to seek. That’s because the banking industry and the factoring business do things differently.

How Soon Do You Really Need the Money?

If you can wait for a few months, then perhaps the banking industry may provide the answer by giving you a traditional loan. That’s because applying for a loan from a bank is a protracted process that can take an entire month, even if you apply to the first bank you see.

A bank is quite meticulous when it comes to evaluating and investigating a borrower’s credit worthiness, and it will need a ton of documents to prove that your business can pay back the loan eventually.

On the other hand, if you need the money as soon as possible, then the factoring business may be the best solution to your problem. A factor may offer any of the alternative financing solutions such as invoice factoring, merchant cash advance, or purchase order finance. An application for any of these financing solutions doesn’t take a lot of time.

How Much Money Do You Need?

If you need at least $250,000 or even $1 million, then a bank may be a more suitable source of financing. In fact, the bank prefers that you borrow larger amounts of money because it earns more from bigger loans. Most banks these days won’t lend money to small businesses who need less than $250,000 or even less than $100,000.

Factors however can accommodate smaller sums. These alternative lenders may be able to lend a million or two, but many of them specialize in lending sums in the thousands, and not in the millions.

What’s Your Credit Score?

If you have a stellar credit score, then a bank may be able to lend you the money you need. Your business should have a good credit standing too. Your credit score is an indication of how likely you’ll be able to pay back the loan.

But factors don’t really care much for your credit score. They care more for the credit score of your customers, since they are the ones who will pay them back not you.

What Kind of Collateral Can You Offer?

In general, your business should have some sort of real estate or expensive equipment to use as collateral. And that may not even be enough for banks. Many small business owners may be required to use their houses and cars for collateral as well. With invoice factoring, on the other hand, your invoices are the “collateral” for the cash advance.



Learn New Business Finance Terms Used by Factoring Companies

Choosing a factoring company to help you finance your small business can be a rather intricate process, but the best factoring companies tend to make everything clear and concise. Sadly, not all factors are the same, and some may have some details in the fine print that clearly negates the promises of their promotions or advertisement.

Take the promise of high advances, for example. A factor may boast that they advance as much as 90% of the value of an invoice and that’s better than getting 80% or even less. You now have more money to pay for overhead expenses and payroll.

But in the fine print, you encounter several unfamiliar business finance terms that may limit the amount of money you get in advance. So let’s take a look at these terms and clarify some common issues. To explain things better, let’s assume that you took up an offer of 90% cash advance on the value of the invoices you want to be factored.

Recourse Period

This is the period after which the factor takes its cash advance back. It’s usually for 90 days, although it can be negotiated with the factor. If you’re just starting your financing with the factor, then any invoice you have that’s unpaid after 90 days won’t qualify.

Once the funding starts, if any customer of yours doesn’t pay within the recourse period, then the factor will take the value of the cash advance from your other invoices. In other words, if you have two invoices worth $20,000 each and you got your $18,000 advance from invoice #1, but your customer did not pay within the specified period, then the factor will need to take out the money he advanced to you from invoice #2.

Debtor Limit

The debtor limit is the maximum value of an invoice / invoices for a particular customer of yours. Let’s say that your factor will only approve of $10,000 per customer. So even if you only have 5 customers with accounts receivable of $20,000 each, you can only get an advance for $10,000 each. That means you will receive a $9,000 cash advance per invoice, so you get $45,000 total.

Concentration Limit

This is another limit on how much debt will be funded for a single customer, but in this case the limit is a percentage of the total funding. So if the concentration is a generous 100% then it’s ok with your factor that you only have 1 customer. But if the concentration limit is 20% and you have only 2 customers owing you $50,000 each, then you can only get a cash advance for $20,000 each. And that means even if you are supposed to receive a 90% cash advance, you won’t get $90,000 from the $100,000 value of your two invoices. You only get a total of $18,000.

Look for these business finance terms in the fine print before signing your name on the dotted line. The best factoring companies will explain it thoroughly for you, but you can’t expect all factors to be clear and upfront.


What Affects the Costs of Accounts Receivable Factoring?

When you apply for a credit card, usually the rates are stated quite clearly, so you don’t actually have to negotiate with the credit card company unless you’re having trouble paying your monthly dues. But in accounts receivable factoring, the cost of the funding depends on several things.

The Factoring Company

Like any other shops, banks, or medical clinics, factoring companies set their own rates and charge fees as they see fit. The best factoring companies will be honest in what they will charge you, and they may take some time to explain what it will cost you for various scenarios. For example, there may be a penalty involved if you break a factoring contract early or if your customer pays late.

So now compare the costs of factoring offered by different companies. Check all the fees your factor charges so you won’t have to deal with unwanted surprises later on.

The Industry

Some industries may charge more when you use factoring because of the inherent nature of the business. For example, in many cases medical receivable factoring can be more expensive because insurance companies are involved. On the other hand, factoring for trucking fleets tend to be simpler with higher cash advances because the job is not complicated at all.

The strength and stability of your customers is also a crucial consideration. When you deal with profitable and stable businesses as customers, then the costs/fees would be less.

Also, some factoring companies may charge less when they specialize in a particular industry, because their resources and services are already geared for that industry. A factoring company that specializes in the trucking industry will charge less than a generic factoring company if you’re in the trucking business.

The Aging Report

The aging report indicates the amounts owed to you by your customer, and it also says the length of time you give them to pay up on what they owe. Factoring companies will charge less if the customers regularly pay in 30 days than if you give them a 90-day term.

The Total Volume

If the total volume of your invoices is worth $500,000 a month, the rate will be lower than if the volume was just $30,000 a month. In fact, the factor would prefer to get all your invoices for funding. There’s an option where you can pick and choose which invoices would be factored (called spot factoring), but then the rate is higher. The rate may be as low as 2% of the value, or as high as 5%.

Like other lenders such as banks, factors prefer that you have fewer invoices with larger amounts involved when your customers are stable. That’s because they do the same work for each invoice, but get a percentage of the value of the invoice.


Finally, talk to more than one factor and negotiate with them. They may be inclined to offer generous terms if they know they have competition for your business. The costs of accounts receivable factoring aren’t set in stone until you sign your name on the dotted line.


What Are Business to Business Loans?

Whenever we think about getting a sizeable loan to fund our business, we often think about approaching a bank. Of course, for many of us this is largely a futile endeavor, which is why business to business loans are becoming more “mainstream.”

Why Banks Are Not Ideal for Small and Medium-Sized Businesses

Big banks only approve 21.6% of small business loan applications, and simple math tells us that this means virtually 4 out of 5 loan applications from small businesses are denied. Big banks don’t really like to grant loans to small businesses because they take up too much of their time, it’s hard to automate them, and costly to underwrite.

But what about small community banks? It’s true that they are more reliable “small business-friendly” compared to big banks, which is why half of all business loans are provided by community banks. The problem is that many community banks are getting out of the business as a result of new regulatory restrictions. A report from the Federal Reserve Bank of Richmond revealed that the number of community banks dropped by a whopping 41% from 2007 to 2013.

B2B Lending Options

The scarcity of lenders has left small business owners no choice but to use their personal credit cards to get cash advances, but this is a dangerous move. Credit cards often don’t have transparent pricing, and the rates for cash advances are rather exorbitant.

But with business to business loans, small business owners now have another option. These B2B lenders may have different procedures, but they all have something in common. They can loan small amounts to businesses that are too risky or new for banks and traditional lenders to consider lending to.

Advantages of B2B Lending

As many small business owners are discovering, B2B lending offers several distinct advantages.

  • It’s very easy. You don’t need to jump through as many hoops as you would when you apply to a bank for a loan. In fact, you only need to go online. You find a platform that offers B2B lending, apply for a loan by sending your personal and work info as well as the amount you need, and then you also include your deposit info.

Once you’ve completed the application, you immediately get funding offers from a number of lenders willing to provide the financing. You can check out each lender’s term and then pick the most suitable one for your situation. Once you’ve done this, you immediately get your money in your bank account.

  • It takes very little time. Not only are you spared the effort of having to go from one bank to another, but you’re also exempted from wasting too much time looking for a loan. B2B loans only take a few minutes to complete. It’s easy enough that you can get the money you need in a day or even less when you get B2B loans.

Of course, the amount may not be all that much, as some may limit you to just $1,000 or $2,500 per transaction. The rates can be rather high as well. But for some entrepreneurs, business to business loans are better than using credit cards and it’s certainly better than wasting weeks applying for a bank loan only to be rejected in the end.


Why You Need Medical Receivables Factoring

Medical receivables factoring is a special type of financing that can help businesses in the health care industry. Whether you’re a medical or dental clinic serving residents in your community or a business that caters to health care centers, with factoring you can get the funding you need more readily than if you apply for a bank loan.

How It Works

Factoring is simple. Instead of waiting for an interminable length of time for your customer or insurance company to pay the invoice, you simply submit the accounts receivable to the factor instead. The factor offers about 80% of the value of the accounts receivable in advance, which you can then use for your own purposes. Once the customer finally pays the factor in full, you then can receive the rest of the money once the factor has deducted its fees.

Purpose of Medical Factoring

There are many possible reasons why a business in the health care industry will want an infusion of cash. One very common reason is to boost the cash flow to help pay for employees such as receptionists and nurses. It’s not really a good idea to miss a weekly salary payment when you’re running your own business and you rely on dedicated staff to help you out.

The cash flow can also help buy supplies that medical clinics need, such as bandages and gloves. These supplies need to be replenished on a regular basis, and that means you need to have your cash flow ready to cover the expenses.

Another good reason is to procure more equipment. Even if you buy used medical equipment, the expense can be very high and can really put a dent on your cash flow. But more sophisticated equipment can put you at an advantage over your competitors.

So how can you get the funding you need? Banks are not as reliable a lender as they once were, and that means you need alternative sources of funding. For many clinics and other businesses in the health care, medical factoring stands as a reliable source of funding that’s unmatched in the benefits it provides.

Special Concerns

Medical receivables factoring is much like other types of factoring in other industries. However, some aspects of it are unique to the medical profession.

For example, there is the matter of dealing with medical insurance companies. Collecting payments is a common task delegated to factors, and in this case it is an extremely welcome relief for a lot of doctors. But medical factors must be experienced in dealing with these insurance companies to avoid any surprises.

Medical insurance companies often contest medical bills, so as a result they do not pay for the whole amount stated in the accounts receivable. As such the factor must expect this.

Another common occurrence is the slow payment of invoices. It’s not terribly unusual for insurance companies to pay only after 90 or even 120 days. This means that medical factors shouldn’t charge exorbitant rates for payments that go past 30 days.

Medical receivables factoring can be very helpful for clinics. But you need to make sure that you get an experienced medical factor so that you can maximize the benefits.

How Attractive are Business Finance Terms These Days?

Financing is one of the most difficult barriers that small business owners have to overcome if they want to stay operational. Nearly every startup will require at least some seed money so they can get their business off the ground so if you don’t have capital, you would have no other choice but to borrow money.

Borrowing Money from a Bank

Commercial loans are the standard choice of many small business owners and they are often used to finance a major investment. These loans usually have fixed interest rates and are often paid monthly or quarterly until the loan matures.

There are two types of loans offered by banks to business owners and entrepreneurs: long term loans and intermediate loans. Long term loans can go for as long as 20 years, and they are best suited for the more established businesses. That’s because these loans require collateral and getting approved can be next to impossible, for startup companies. Intermediate loans, on the other hand, are short term loans that can run as short as a few months to a couple of years. Banks do not require collateral for intermediate loans but the amount of money you can borrow is minimal compared to long term loans.

Business Finance Repayment Terms

When applying for a business loan from traditional lenders, you must prepare a detailed and comprehensive business plan. You have to fully explain your proposed venture as this will help the lender determine the right kind of financing to offer you.

But before approaching a lender, you need to decide how much money you need to borrow, the type of loan you need, for how long you should pay it, and if you can actually afford to repay with interest.

Business finance terms may be different for each lender but generally speaking, the lender will require a portion of the loan together with the interest to be paid to them at regular intervals. The amount you need to pay each month (or quarter) will depend on the term set by the bank and the duration of payment. Be aware that the longer the term of the loan, the more (total) interest you will need to pay.

Business Financing Challenges

Most startup companies do not realize the challenges they would face when they try to raise some capital. Although there are definitely many options out there, getting the financing they need is actually not easy. You can seek the help of venture capitalists and other kinds of investors, or go to banks and traditional lenders but none of them will part with their money easily. You have to go through a very stringent evaluation process with very little chance of success. That’s because many startup small businesses do not meet the criteria that lenders set – such as stellar credit history, sound financial background, and length of business.

The business finance terms offered by banks are attractive – low interest rates and longer repayment periods – but very few small business owners can really take advantage of the financing they offer. And that is why many have turned to alternative lending. Faster processing time and higher approval rating make these cash advance platforms suitable for businesses that need capital, now.

The Ins and Outs of Loans Receivables

If you plan on running a business of your own (or if you’re currently running a small business), then one of the first business administration tasks you need to learn is on how to come up with an accurate balance sheet. Essentially, a balance sheet shows your assets such as your cash reserves, your accounts receivables, your loans receivables, your equipment, and your inventory. It also shows your liabilities, such as your debts and your projected expenses.

So how do loans receivables enter into the picture? The loans receivable is the sum of money you have sent out as a loan that you haven’t collected yet. So if you’re running a bank or a lending institution, this sum is the money you lent out which you expect to get back. And if you’re earning interest on that sum, that interest goes into the balance sheet as part of the owner’s equity.

Here are some facts you may find interesting:

  • Loans receivable are related to accounts receivable, because you usually give your customers time to settle their accounts. So if you give them 30 or 90 days to pay instead of making them pay up front, it’s as if you lent them the money for 30 or 90 days.
  • It’s not only banks and lending institutions which can offer loans to customers. For example, some equipment manufacturers may offer payment terms to their customers which allow the customers to make regular monthly payments for 6 months or a year. This may also be considered a loan receivable.
  • Long term loans receivables may be difficult to use as collateral for financing. The reason why factors prefer accounts receivables is that they typically need only 30 days before payment is due. It’s very rare to give 60 day or 90 day payments, unless it is an industry such as health care where even 120 days to pay is not unheard of. But factors may not tolerate waiting for an entire year before the receivables are settled.
  • Your balance sheet should also reflect what you think is the most probable outcome regarding the payment of the loan. So if you think that $10,000 of a $30,000 loan receivable will not be repaid by the customer, then your balance sheet should reflect this by reducing the account by $10,000.

This is different for tax accounting, however. In tax accounting, the Internal Revenue Service would rather you wait for definite proof that the amount will go unpaid before you report it as a bad debt.

So why should you learn about loans receivables and balance sheets? If you’re running a business, the balance sheet gives you an accurate idea as to how profitable your company is and how valuable it is now. This can be very important when you are applying for a bank loan, because your balance sheet is one of the documents they will look at closely.

The balance sheet will also be important if you’re selling equity in your company to get additional financing. So if you’re planning to sell 10% of your company to get the capital you need, then you need the balance sheet to know how much your company is really worth as a whole.

What are Asset Based Lending Companies?

In a perfect world, as a small business owner you can borrow money without collateral and lenders will just take you at your word. But then again, in a perfect world you probably wouldn’t even need additional financing. In the real world however, you may have to approach asset based lending companies to provide necessary funding for your business.

What Are Asset Based Loans?

Asset based loans are what you get when your business needs to boost your working capital because you’re having cash flow difficulties. Often this is not a case of poor market conditions, but actually a consequence of rapid growth.

For example, you’ve received a lot of purchase orders which offer a lot of profit opportunities for your business. But each purchase order requires a sizable investment because your suppliers are demanding payment upfront.

Or you can be a manufacturing firm and the demand for your products has suddenly tripled, so you open another manufacturing plant which again costs a substantial amount of money.

If your small or midsized business is trying to expand, but it is basically stable and have financeable assets, then this growth can be accommodated properly. Some lenders don’t even mind if your business doesn’t have a very high credit rating or a long track record.

Which Types of Assets Are Eligible?

The most typical assets accepted by asset based lending companies are accounts receivables. But other assets may also be accepted. These assets include the expensive equipment you use, the real estate the business holds, and the inventory of products.

What’s important here is that these assets must not be involved in any tax, legal, or accounting issue. If they are to be used to secure the loan, then they should not be already pledged as collateral to another lender, unless that lender agrees to subordinate its position. In other words, if your business is unable to pay off the loan, then the asset based lending company gets first dibs on your assets to pay off the loan.

The asset based lending companies inspect the assets and then offer a percentage of the value of the assets. Usually, with accounts receivables you may be able to borrow as much as 80% of the value of the ARs. For equipment and inventory, the money you can borrow is usually no more than 50% of the value.

Lenders may usually inspect the assets regularly especially when they involve equipment or inventory, and these inspections will be part of their fees.

Difference between Asset Based Lending Companies and Factors

When you deal with asset based lending companies, you are essentially borrowing money. While this may seem similar to factoring when you use ARs, with factoring you’re not borrowing money at all. Instead you’re selling your ARs.

Also, in factoring the factor is involved in the collection process. In fact, your customers pay the factor directly and they forward your money to you after they have deducted their fees. While many lenders now also prefer this approach, other asset based lenders may not have any contact with your customers.

Why You Need AR Factoring Companies for Your Particular Industry

Factoring is a financing method where the finance company called the factor offers a substantial cash advance (usually 80%) of the value of the accounts receivable. The problem is that some business owners choose an accounts receivable factoring company based solely on the fees they charge. But what’s really more important is that the AR factoring companies you should consider should also specialize in your particular industry.

Medical Factoring

One good example here is medical factoring. Factors who do not have experience in the medical industry may insist on letting customers to pay in 30 days. But that’s not going to happen in the health care industry where the “customers” are mostly Medicaid, Medicare, and private insurance companies. These organizations usually take as many as 90 days to pay up completely, and some insurance companies tend to contest medical bills whenever possible.

This is hard to explain to inexperienced factors, but to those with experience this is a fact of life that’s accounted for in their factoring service.

Construction Factoring

In the construction industry, another set of rules exist for factoring. In fact, different types of construction projects may have different requirements. For example, financing a directional boring contractor is very different from funding a cell tower maintenance provider even though both belong to the construction industry.

The industry also involves progress payments, which may not be very precise. When a portion of a construction project is completed, then a specified part of the payment is made. This is different from wholesale companies which need to deliver an entire order before a payment is made.

Construction factoring may also involve general contractors and subcontractors, and this is another wrinkle that inexperienced AR factoring companies may find confusing. Sometimes, a subcontractor only gets paid when the general contractor is paid. This is called the “pay when paid” clause, and only an experienced factoring company will know how to deal with this issue properly.

Factoring in the Trucking Industry

Many factors offer credit investigation reports to their clients, and for trucking companies that’s a very useful service. After all, factors set their approval and their rates based on the creditworthiness of your customers. Their findings should be made available to you by your factor, so you know to whom you can extend credit in the first place.

But factors who specialize in trucking should also offer a fuel card program. This offers substantial discounts for your trucking firm. They should also offer fuel advances too, which is a special type of advance on accounts receivables to cover fuel expenses.

When opting for factoring to fund your business, your choice of AR factoring companies mustn’t be based only on how low they charge. It must also depend on the breadth of experience the factoring company has in the industry your involved in. When you deal with an experienced factor, you no longer have to explain things. Instead, the factor may even have ready solutions for your problems.