A Typical A/R Loan

Accounts receivable loans are a special type of asset based lending. In this case, the asset is not the inventory, the equipment, the building or land. The assets in this case are the accounts receivable, which serve as proof that you will receive payments from your customers in 30 to 90 days.

For a clinic, A/R means the payments which can come mostly from insurance companies paying for the treatments of your patients. For a medical device company, the customers may be hospitals and clinics who bought equipment you manufactured or distributed.

Usually, a loan with accounts receivable as security will get you about 70% to 90% of the value right away. If you receive a loan, you will have to pay an annual interest rate which can be anywhere from 6% to 20% of the loan amount.

You still need to process and handle the invoices yourself, and the collection of the payments may still be your responsibility. However, your lender may insist that all customer payments should be immediately sent to them.


Invoice factoring is a special kind of loan, because technically it is not a loan at all. It involves a “sale” of the invoices. Like an A/R loan, you get an advance on the value of the invoice, and the factor collects the payments for you. You can get regular reports as to the status of the invoices. When the customer pays in full, the factor then gives you the rest of the payment after it has deducted its fees.

Factoring can have several variations, depending on the agreement. In some cases, a factor may not be able to get its advance back from you if the customer files for bankruptcy. In all other cases, the factor can demand its advance back if for any reason the customer defaults on the debt.

There are several benefits to factoring. One is that a small clinic may be spared of having to worry about collecting their accounts receivable altogether. The factor can handle them for you, and you won’t have to talk to insurance companies who are almost always reluctant to make payments. Factors may even investigate potential customers and identify the ones which have a poor credit history. If you own a medical device company, such customers represent a high risk to your business.

Regardless of what kind of 2014 medical A/R loans you get, in general they are much easier to secure than regular and (unsecured) bank loans and lines of credit. It’s even possible to get this type of financing even if your own credit is not so good. What’s more important to lenders is that the credit of your customers is excellent. After all, the payments for the loan ultimately come from your customers.

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