How Medical Receivable Factoring Works

If you’re running a business in the health care industry, it’s guaranteed that sooner or later you’re going to have a problem with cash flow. And that’s where medical receivable factoring comes in.

There are two reasons for this. One reason is that you’re going to have to spend a lot of money on day to day expenses. Whether you’re a vendor selling goods or services to clinics or you run a clinic that helps treat patients, expenses are a fact of life in the medical industry. A clinic, for example, will need sufficient ready cash to cover payroll, pay for rent and utilities, make the regular payments for the equipment, and purchase regular medical supplies such as gloves, syringes, bandages, and medicines.

Another reason is that health insurance companies can really slow down your cash flow cycle. While your suppliers may require you to pay up front or in 30 days, insurance companies can take up to 120 days to settle the bill. What’s really aggravating is that you’d have to follow up on them regularly, and even then they may not pay the full amount.

So how does medical receivable factoring work?

  1. Factoring for vendors. In this scenario, your customers are the clinics who treat patients. When you bill them, you send the receivables to the factoring company which then gives you the advance of about 80% of the value of the invoice. The factor then waits for the clinic to pay them in full, and then the rest of the payment is sent to you minus the fees of the factor. It’s pretty much a straightforward arrangement.
  2. Factoring insurance claims for clinics. This version can get a bit more complicated. It’s the same basic format, in which the factor forwards you an advance and then the rest of the payment is sent to you once the insurance company has settle the claims. Usually the factor deals with the insurance companies by sending a notice of assignment, and experienced factors realize just how long it will take so that they don’t charge you outrageous amounts when they take 120 days to pay.

However, insurance companies are also known not to pay the full amount. So if this happens, the factor doesn’t reimburse you for the missing amount. In fact, the factor may hold back 20% of the receivables in a reserve account to cover instances when the factor pays less than the advance you get. So if you get 80% in advance and the factor ends up getting only 70% of the value of the receivable from the insurance company, the factor takes money from the reserve account to cover the advance and the fees charged by the factor.

  1. Factoring Medicaid and Medicare claims. As you know by now, factors operate by requiring your customers to pay them directly instead of sending the payment to you. Unfortunately, Medicare and Medicaid don’t allow you to assign the claims to a third party such as a factor. Medicare and Medicaid will only pay you directly, and won’t send payment to your factor.

This problem must be discussed with your factor, but an experienced factor already knows how to set a managed account, which is also known as a sweep account. This account is in your name and ownership, so Medicare and Medicaid can send the payments to this account. At the same time, the account gives full operational control to the factor, so the factor can collect the payments and its fees and also settle the invoice for you.

All these may seem complicated, but when you’re dealing with a financing company that has experience in medical receivable factoring, it’s actually very simple.

Should You Rely on Your Local Bank for Real Estate Commercial Loans?

If you own or manage a real estate company, you sometimes find yourself at the mercy of your local bank when you need a loan. The problem with local banks is that they may not have much experience with real estate companies, and that’s supposing that they are willing to provide you with the funds you need for your business. But with the assistance of a loan consultant such as 1st Commercial Lending, you may be able to get the funding you need – fast.

Here are some of the advantages of dealing with an institution such as 1st Commercial Lending:

  • You get access to more lenders. Shopping for lenders is a necessary step if you want to get the best terms for your loan. The problem is that it is so tedious to do, and so often you’re limited to your local banks.

But reputable firms such as 1st Commercial Lending may represent more than 300 commercial lenders which can offer loans to firms all over the country.

  • Dealing with an industry specialist is much more convenient. A specialist in commercial real estate loans already understands the intricacies of real estate deals and the needs of real estate companies. So whether you need a loan for commercial real estate, business acquisition, expansion, a startup, to boost your working capital, to fund your equipment purchase, or to consolidate your debt, you’ll be guided every step of the way.
  • You can get different types of loans for different types of commercial property. These properties may be apartments, hotels, motels, office buildings, retail buildings, warehouses, industrial buildings, or self-storage structures. The loans can come from banks or private lenders or they can be backed by the SBA. Loan amounts can range from half a million dollars to $20 million.
  • The application process is very quick and easy. You just need to fill out a short application form indicating the type of property, the purpose of the loan, the amount of the loan, the estimated property value, and where the property is located. Then you furnish your data including your contact info.

In 24 hours a specialist will discuss your options with you and you choose which option is the best for your specific situation.

Typically, a commercial real estate loan can be closed in 45 or 60 days. But there is a Fast Track option that accelerates the process so it only takes 30 days.

  • You don’t even need to use up all of your savings. The SBA loan programs can cover up to 90% financing. In some cases, they even offer a working capital loan to help out on the transition.

They can also help you buy an existing business or start a new one.

So should you rely on your local bank for real estate commercial loans? The short and simple answer is no. You’re better off relying on a loan consultant such as 1st Commercial Lending instead. At the very least, you get more financing options so you can choose the best terms for your loan.

 

The Pros and Cons of Assets Based Lending

Wouldn’t it be amazing if you can borrow money simply on your word that you will pay it back? Sadly, that’s not how it works. Far from it. Many banks have very rigid lending requirements in place. Recent news articles report that there’s a surge in approval rates at big banks, but actually as of March 2015 big banks only approve 21.6% of small business loan applications. So if you want to increase your chances of getting a loan, you may have to resort to assets based lending.

What is Assets Based Lending?

Most of the time, assets based lending involves risking your future earnings to get access to capital immediately. The typical assets lenders accept are your accounts receivables and your inventory. These assets represent money in the future, and your lenders are willing to give you an advance against it now.

Other lenders may also accept equipment and real estate as collateral for a loan. The money you can borrow will depend on the valuation of the equipment and/or real estate. Of course, these assets must be encumbered and free to use as collateral. They should not be embroiled in any legal or accounting issues and they’re not already used as collateral.

Typically, you can borrow as much as 80% of the value of the accounts receivable. You may also borrow half the value of the inventory, equipment, and real estate.

Getting approval for assets based lending is also not just a matter of having the appropriate assets. You’ll still need to show documentation that your business has good financial statements and reporting systems, and that your inventory is very easy to sell. You also need to demonstrate that your customers have a good history of paying fully and on time.

Advantages of Assets Based Lending

This form of financing can be very helpful if your business is undercapitalized, in the process of a turnaround, or on the way to rapid growth. That infusion of cash you get may be the final tool you need to set your business into a stable and profitable future.

These loans can also be used to finance acquisitions for growth. Another suitable candidate is a company with seasonal needs and industry cycles which often result in cash flow difficulties. The loan can help them get the cash flow problem straightened out.

Drawbacks of Asset Based Lending

First of all, the chances of securing a loan or a line of credit is only as good as the quality of the assets you possess. The lenders often only approve of accounts receivable as collateral when your customers have stellar credit and they pay in less than 60 days.

The interest rate for assets based lending may also be higher than traditional bank loans, and some lenders may even require you to personally guarantee a loan. Some lenders also insist that your customers send their payments directly to them, and the lender will only pass on the payment to you after they have taken out the advance plus interest. Nevertheless, this form of financing gives you another option besides traditional bank loans.

6 Common Indicators of the Best Factoring Companies

Factoring has become a very popular way of getting funding among small businesses these days. It offers a lot of benefits, but of course, it still depends on which factoring company you do business with. The best factoring companies are actually very easy to identify. Take a look:

  1. Online application. One of the advantages of factoring as a source of funding is that you don’t have to go all over town to secure the financing you need. This is what you usually do when you’re shopping for a bank loan. With factoring, many factors allow you to apply online sometimes through a broker so you can apply to several factors in the comfort of your own home.
  2. Fast approval. This is another advantage you can get when you work with the best factoring companies. Banks can take weeks or even months to determine if you qualify for a loan or not. But factors may usually only take a week to see if you qualify for factoring. For the best ones, it may even take 48 or even just 24 hours to know if you qualify. This helps you to quickly identify which factoring companies are willing to help you out.
  3. Sufficient advance rate. In factoring, you get a percentage of the value of your invoice right away instead of waiting 30 days for the customer to pay in full. For most factors, the percentage of the value is about 75 to 80 percent. But if that’s not sufficient, some factoring companies may offer as much as 90% or more if your customer has a stellar credit history. If the invoice is worth $100,000 then it’s the difference between getting $75,000 and getting $90,000 right away. For some companies, the $15,000 difference can be a deal breaker.
  4. Competitive fees. Some companies charge very little fees. For example, they may not even charge any application or startup fees. Some factors on the other hand may charge for application and for startup, and they may even charge you when you terminate the factoring agreement.
  5. No long term contract. Some factoring companies may require you to make use of their factoring services for more than 2 years, which can be a costly process especially when you only have a short term problem that can be solved by factoring for a few months. But the best factoring companies may only require you to make use of factoring for the time period you need.
  6. Easily accessible. Factors are usually in charge of collecting the payment from your customers. The best factors post the information online (through a private, secure account), so you will know when an invoice is due or when a customer has paid in full. Other factors may even send the info through other means, so you can email, or phone them for the info if you want.

There are other considerations when you’re shopping for the best factoring companies to transact with, but in general they all offer useful benefits at very low costs.

 

 

Who Can Benefit from Medical Factoring Companies?

In any type of business, there is always the need for sufficient funding. Without it, the business simply cannot survive. But such reality is even more evident in the health care industry, where many businesses operate on very limited capital. This is because businesses like medical clinics and hospitals are often paid through insurance claims, which take as much as 120 days to pay up. Such delays create substantial cash flow problems for health care providers who have daily overhead expenses to take care of.

What is Medical Factoring?

The rise of medical factoring services is welcome news for businesses in the health care sector. Medical factoring solves cash flow problems by providing you with ready cash that you can use in any way you deem necessary while you wait for your payments.

Medical factoring companies usually do not have stringent requirements. They will only evaluate the credit-worthiness of the insurance company to whom the insurance claims were filed, and once that is established, they will immediately give you an advance against the claim. Simply submit your approved claims to the factoring service, and they in turn, will advance as much as 80% of the claim. Once the claim is paid, the factor then gives you the remainder of the payment minus their fees.

Pros and Cons

The single most crucial benefit of opting for medical factoring is that it solves your cash flow problem. Now, with their help, you don’t have to worry about when insurance companies will pay you. You can get your much needed capital resources in just a few days, instead of months.

Another benefit of choosing this alternative form of financing is that it gives you flexibility. While it is possible to get a line of credit from the bank, you can simply use medical factoring to give you the funding you need not just to stay afloat, but even to grow and expand (or to down-size if necessary). You get to choose which (and how much) of your approved insurance claims you can submit for factoring.

But of course, while it can literally be “life saving,” factoring not exactly without drawbacks. For one, the fees can be higher than what banks and other traditional lenders would charge. So before opting for it, see to it that you have a good understanding of the terms and fees of the medical factoring service.

Who Can Apply for Medical Factoring?

Medical factoring companies usually offer financing to the following:

  • Hospitals
  • Physicians
  • Home healthcare companies
  • Nursing homes
  • MRI clinics
  • Laboratories
  • Physical Therapy/Rehabilitation companies
  • Radiology centers
  • Medical equipment providers
  • Ambulance service providers

 

Approaching medical factoring companies is especially practical for startup businesses that don’t have credit history, which is a standard requirement for bank loans. Factoring is also suitable for those who need financing to make payroll, those who want to expand their business or buy new and expensive equipment and machines. To get the most benefit from medical factoring, always choose a factor with extensive experience dealing with health care businesses.

Should You Factor Your Receivables?

Factoring is one of the more convenient ways to get additional funding to help a business get through difficult time or to take advantage of market opportunities. This financing option is not a loan. Essentially, factoring involves selling your accounts receivable so you don’t have to wait for the receivables to mature (usually 30 to 60 days) before you can get your money. Instead, when you factor receivables you can get as much as 80% of the value of the receivables in a day or two. The rest of the funds will be given to you when the customer pays in full.

So if you need money, is factoring a sensible option for you? Here are some of the indicators:

  • You have bad credit or you don’t have collateral. A stellar credit and collateral are what your bank will require from you if you ask them for a loan. But if you don’t have good credit and you have nothing to offer as collateral, you’re out of luck. In contrast, factors only care about the credit of your customers, and the receivables will serve as collateral.
  • You need the money ASAP. You should just factor receivables instead of applying for a bank loan, because bank loans just take too much time. Banks are meticulous with paperwork because they want to be assured that you can pay off the loan plus interest, on time.

On the other hand, factors don’t really like delays. It may take a week or so to investigate the credit worthiness of your customers, but once you have a factoring line set up and your invoices are factored regularly, you can get the money you need in a day or two instead of waiting 30 or 60 days.

  • Your accounts receivable collections are on a different schedule compared to your expenses. Factoring gets you your money right away, which can be a great help when you need to pay your employees on a weekly basis.
  • You only have few receivables involving large amounts instead of numerous invoices with small amounts. Usually, there is a fee for each account receivable factored by the financing company. So it’s better to consider factoring if you have a single invoice worth $100,000 rather than a hundred invoices worth a thousand dollars each. In the latter scenario, that involves a hundred fees in total.

So if you’re a retailer, factoring may not be for you. If you’re selling medical devices, for example, it may be better if you’re selling a large volume to hospitals than if you’re selling small ticket items to dozens of small clinics in the area.

  • You want to take advantage of the extra services offered by factors. Factors investigate your customers and identify which ones are creditworthy and which ones are not, so you will know which among your customers should be given term payment options. Also, factors take care of the collection, which means you won’t have to set up a separate department for it.

If all these things apply to your business, then you’re an ideal candidate to factor receivables instead of getting a bank loan.

 

Increased Demand for Accounts Receivable Factoring

There was a time not so long ago when factoring had a bad rep in the business world. Some considered it a commercial version of payday lending, and others regarded it as the only viable financing option for struggling companies. But while it is true that companies with bad credit and no collateral make extensive use of accounts receivable factoring, many others have found it an ideal way to get financing.

  • Fewer business loan applications are approved by banks. In 2012, the National Small Business Association reported that 25% of small businesses didn’t have the necessary capital to fund the growth of their company. Many business owners find it difficult to stay afloat even when market opportunities are presenting themselves. Yet in December 2012, it was found that of the small business loan applications less than 15% were approved.

In contrast, applications for accounts receivable factoring have a much higher chance of getting approved.

  • Bank loans take an inordinate amount of time. Banks like to investigate every little detail about the business who wants to borrow their money, and because of that, loan applications take weeks or even months to get processed. In contrast, factoring applications only take a short while because only the quality of the invoices is investigated. And once your business has a relationship with a factor and you keep the same customers, you can get the funding you need even faster.
  • Factors don’t require any other type of asset as collateral. The invoices are more than enough. In contrast, many banks require business owners to personally guarantee a business loan and this may require them to put up their personal assets as collateral just so they can get the money the need for capital.
  • Factors offer many services that banks don’t. Factors investigate the credit worthiness of your customers to see which ones are known to pay in full and on time. Their investigations can help you identify which companies deserve your business and which ones are best avoided. Factors also assume responsibility for processing the invoices and collecting the payments, and this means your company may be spared from having to set up a separate department for this sole function.
  • Factors don’t set limits with what you can do with your cash advance. When banks offer loans, often they want some input as to where you should spend that money. Banks want to be sure that they will get their money back, so they set limits on what you can and cannot do with the money.

In contrast, factors don’t care how you use the money. Once you get the usual 80% of the value of the invoice, you can use it to pay your employees, cover your overhead and operational expenses, or pay of your outstanding debts.

  • Factoring is technically not a loan. When you avail of factoring services you won’t have any debts listed on your credit report, because the money you get is an advance and not a loan. It does not affect your credit in any way.

With accounts receivable factoring, all these benefits are yours to enjoy. No wonder the demand for these alternative forms of financing continue to increase every year.

 

Factoring Accounts Receivable: How It Works

In most cases, a business that needs an infusion of cash right away to help them get through a difficult time or to foster expansion will go to a bank for a loan. But if your customers are businesses as well, then you may want to think about factoring your accounts receivable instead.

Here is how it works:

  • The purpose of this financing option is to free up your cash flow instead of having the money tied up in your accounts receivable. This method essentially “sells” your ARs to the factoring company, instead of getting a loan.
  • Initially, the factor’s main concern is that your customers are creditworthy so that they know the invoices you issue will be paid in full on or before the due date. The factor’s research can be very helpful in helping you identify which among your customers can be trusted to pay promptly.
  • Once your factoring set up has been finalized, you can send the factor a copy of the invoice. Usually, this invoice will specify the amount owed by the customer and also when the payment is due, usually in 30 days or 60 days.
  • Instead of having to wait for that money, you can get a sizable percentage of the money immediately. It all depends on your agreement with the factor, but on average you can get about 80% of the value of the account receivable upfront.
  • The remaining 20% will be sent to you once the customer pays in full. The factor takes over the management of your accounts receivable, and they do the collecting as well. The customer pays the factor directly, and then they pass on the rest of the payment to you after they have taken their fees.
  • You can then use this money for any of the most pressing needs of your company. You can pay the salaries of your workers, cover the operating costs, pay your supplies, or improve your business by doing renovations or buying new equipment. Factors usually don’t care what you do with the cash advance, unlike banks who want to know what you wish to do with the loan proceeds.
  • The factor doesn’t just advance you the money against the accounts receivable. They process your receivable as well. Essentially, it’s as if you are outsourcing your accounts receivable processing and collecting to a third party.
  • In some situations, all accounts receivable may be part of the factoring arrangement. But it may also be possible to only choose certain invoices for factoring.

As you can see, it really is very simple. Factoring your accounts receivable is a much faster process and much more likely to get approved than getting a bank loan. And getting the funding you need does not affect your current credit, nor are you required to put up your personal assets as collateral.

The Advantages of Purchase Order Finance

It’s often a wrenching decision to turn down a large purchase order from a reliable customer simply because you don’t have the financial resources to fulfill the request. This is especially true when that order represents a very tidy profit, or if it may result in regular business with that customer. That’s a lot of potential profit down the drain.

To solve this problem, some businesses apply to banks for a loan. Others sell a percentage of the business to venture capitalists to get their hands on much needed cash. But for others, the necessary funding may be available via alternative forms of financing such as purchase order finance.

This approach offers several crucial advantages:

  • You don’t miss a great opportunity for profit. Purchase orders represent a large chunk of profit, but if you can’t take advantage of them then your company misses an opportunity to increase revenue. It’s not only this particular situation which can provide the profit for you. It also affects your future business, because your reputation can be affected as well. If you can deliver on the purchase order, then the customer is more likely to do more business with you in the future. But if you turn down the order, then the customer will have no choice but to do business with your competitor.
  • Purchase order financing takes a very short time to secure. A business loan from a bank can take a very long time to process, because of all the requirements they need. And often, the application for a loan may be rejected. But with purchase order finance, it doesn’t take all that long because the financing company only needs to know the creditworthiness of your customer.

Once you’ve already had a good relationship with a purchase order finance company, getting much-needed funding may take only a few days.

  • Your bad credit isn’t going to be a problem. Many businesses can’t get a bank loan because their credit isn’t up to par. So if your credit is bad, even if you do get a loan it may not be for the amount you really need. The interest rate may also be exorbitant.
  • You don’t need collateral. Many businesses put up some of their assets as collateral to get a loan, and sometimes business owners may even need to offer their personal assets on the line. Now with purchase order finance, the lack of collateral is not going to matter, because the purchase order itself is the only collateral you really need.
  • It frees up your cash flow reserves. If your current cash flow is inadequate to pay your suppliers to fulfill a purchase order, the financing company can come in and help. Not only can they add the missing amount, but they can actually cover the entire supplier expenses. This frees up your cash flow to use for more pressing needs, such as salaries for your workers and paying off other operational expenses.
  • It doesn’t affect your credit. Even if your bank loan application is approved, your credit is affected. But purchase order finance is technically not a loan at all, so your credit is unaffected.

With purchase order finance, you can take advantage of opportunities brought on by a large purchase order.

Purchase Order Financing Process: How It Works

It can get a bit frustrating trying to jump through all the hoops required by your bank before you get the loan you need to fuel the stability and growth of your company. This is especially true if you have a customer with a huge purchase order that gives you massive profits, if only you had the cash flow to fulfill the order. But there’s a way to use the purchase order as collateral to get the funding you need and this purchase order process of financing is actually quite simple.

  1. You get a purchase order issued by your client, but you don’t have the resources to fulfill the order. So you approach an alternative lender to avail of purchase order financing. Generally, the lender checks that you have the ability to provide what’s needed (at a profit), and that the customer has a good reputation.

What this means is that you don’t have to spend too much time during the financing application process. And if you have a government contract or a large reputable firm as a customer, it speeds up the process even further.

  1. Once the financing company agrees to fund the purchase order, they will pay your suppliers on your behalf. This may be in the form of cash, letter of credit, or a guarantee. Your supplier can then trade with you in full confidence that they will be paid for their services.
  2. Your supplier then ships the goods, you deliver the order to the customer, and then you provide the invoice. You then send a copy of the invoice to the finance company along with the proof of delivery.
  3. Usually, the invoice goes through a factoring process, in which you get a percentage of the value in advance from the lender. That means you may get about 80% of the value of the invoice right away, so you can use them for your most important expenses. The rest of the money is held in reserve by the lender.
  4. Once the customer finally pays in full, the finance company sends you the rest of the payment, minus the fees for the purchase order financing service. These fees depend on a lot of factors, such as the amount of money to pay the suppliers and the length of time it takes for the customer to settle what was owed.

It’s such a simple process, but it works. You can get the funding you need without wasting too much time, and you don’t even have to actually borrow money. The purchase order process enables you to accept large orders without having to disappoint your customers or make your suppliers unhappy.

What this means is that you’re no longer limited to bank loans to secure the growth of your company. Even if you don’t have the credit and the collateral needed for a loan, you can still get the capital you need a lot more quickly.