Healthcare AR funding
Q. Why doesn’t my local banker understand how healthcare works? Business is good, but bridging the gap between sales and collecting accounts receievable creates an operational challenge.
A: Banks tend to look at existing financials when assessing whether a business is a good loan candidate and don’t look to the future. AR is normally not sufficient for lines of credit because they are intangibles. You can’t sign them over to the bank like property.
For a line of credit, the bank wants to know you have assets. You might be able to get a $100,000 line of credit if you own a piece of property, but if you wanted to increase that line of credit, you would have to provide tangible assets to collateralize it such as stocks, bonds, or more real estate.
Most banks do not understand AR, much less healthcare AR, and don’t want to be in the business of collections. Healthcare is a complex niche that doesn’t play by standard rules. Thirty day invoicing occurs in a perfect world. But in healthcare, for example, if you bill $10,000 worth of services, you might collect in 60-90 days and you won’t get the full amount.
When a traditional loan isn’t available, healthcare AR funding is a viable option. Although you have to pay a discount rate, you retain control of your business. Steve Kantor, president of Medical Solution Suppliers knows this well. “AR financing works because responsibilities are clearly understood and everyone works to make it happen,” says Kantor. Funding sources provide flexible boundaries and are always moving forward to help the customer. “I was able to grow because I had something stable in place and didn’t have the anxiety of wondering when the next reimbursement check would arrive.”
Rick Muckelrath is v.p.of origination at Medical Capital Corporation: 800-417-1299 or Rickm@medicalcapital.com.