Cash flow management requires strategy

Wednesday, October 31, 2007

Q. What financial tools are available to protect my business from fluctuations in the revenue cycle since my overhead stays constant week to week?
A. This question often arises as providers strive to maintain inventory, pay overhead, expand and even make a profit. To address this issue of "fluctuations in revenue cycle," you must ascertain whether the financing tools available move concurrently with your revenue stream, since cash flow is determined by your revenue cycle, not your billing cycle.
Loans, including lines of credit and asset-based lines, have a common limitation. Dollar availability is fixed and cannot be reused until some portion (or all) is paid back. For example, an HME acquires a loan to upgrade equipment, pay expenses and replace inventory. A new order depletes that inventory significantly. Although payments from Medicare and other carriers may lag, expenses including loan repayment must be paid. However, additional credit is not available until the existing line has been repaid. Consequently, unless you have established a credit line sufficient to meet the cash flow requirements you might need in the future, loans won't work because they do not fluctuate with your revenue cycle or expand with your growth.
A financial tool that directly follows the revenue cycle is medical accounts receivable (MAR) funding. It provides a cash-flow solution to your working capital needs. Simply put, a specialized funding source purchases your accounts receivable and advances you cash. You deliver your product or service and get paid in 24 to 48 hours. There are virtually no limits on the amount of funding available and no requirement to repay the first MAR funding before you can receive additional funding. The more receivables generated, the more funding that is immediately available to you. hme
Fred Leder is vice president of business development for Sun Capital Group. Reach him at 800-880-1709 or