A medical A/R asset based revolving line of credit is probably one of the most helpful financing options available to medical companies these days. Medical companies are very expensive to run. They require the purchase and use of expensive medical equipment, medical supplies are needed constantly, and the staff often asks for high salaries. And all your problems are compounded by the fact that insurance companies form the bulk of the payers.
For doctors, loans and medical factoring offer a few of the alternative financing options, but with an A/R-based line of credit, problems such as the need for greater cash flow to cover salaries and supplies can be solved.
Here are some of the more important features of an A/R-based line of credit:
- The interest rate can be much lower than the fees required for medical factoring. It’s actually possible for you to pay only 6% in interest. With medical factoring, a 2% interest may be charged every 30 days. That’s at least a 24% annual interest rate, and some factors may charge higher fees.
- With a line of credit, invoicing is still your responsibility. It will also be your responsibility to collect the payments.
- The money or cap limit you get depends on the value of your invoices. Some invoices are not eligible such as accounts older than 90 days, or those involving insurance companies which the lender may not want to deal with. So if every month you pull in $150,000 in invoices and only $100,000 is eligible, then you get a maximum advance based on the $100,000.
Some companies may offer more flexibility when it comes to the accounts receivables they consider eligible. Some, for example, may accept borrowing against invoices that are 120 or even 180 days old. Others may be willing to accept invoices that will be paid by Medicare and Medicaid, and may even consider accounts with foreign companies.
- Typically, the lender can advance as much as 80% (or even 85%) of the value of the eligible accounts receivable.
- As the borrower, you only pay fees on what you actually draw from the line of credit. If you only take $50,000 in advance even if you have an $85,000 maximum limit, then your interest rate is applied to the $50,000. This is the main advantage of a line of credit against a loan. You only borrow what you really need, and you only pay the interest on that amount.
- With that kind of money available to you, you can use it for a number of purposes that can benefit your company. You can use the money to pay tax and salary obligations, and even hire new employees. It can support your growth, and help you take advantage of any business opportunity that falls your way.
- Lenders tend to monitor the state of your accounts receivable closely. You have to make regular reports on the status of your receivables regularly. This can be done weekly or monthly.
- Some lenders may ask for financial covenants, but others may not.
Essentially, with a medical A/R asset based revolving line of credit what you have is a special “credit card” which you can use however you want. And you only need to make sure that your patients and their insurance companies make good on their payments.