Most businesses consider cash flow as their primary essence. Funding the patient accounts receivable of providers is a way to produce the required capital. It can serve as an alternative to waiting for the reimbursement from third party payers for healthcare goods or services provided.
Accounts receivable financing allows providers to receive a part of their finances sooner, thereby increasing cash flow.
The Funding Possibilities
Providers who are interested in receivables financing should familiarize themselves with its structure and the way it could affect their cash flow. For loans secured by real property or equipment, the provider commonly borrows a certain amount of cash in a lump sum. As long as the provider pays back the loan, the lender usually follows a hands-off method and doesn’t closely observe the business.
However, accounts receivable financing usually operates in a different way. Because the collateral of the lender is continually changing as receivables are gathered and new ones are made, the freedom of the provider to borrow also changes.
This is why this type of financing is usually controlled, as lines of credit where the provider can repay the loan, borrow, and re-borrow as new ones are produced. To know the borrowing availability continuously, the lender should have entry to updated receivables data.
The Borrowing Base
Commonly, providers are allowed to borrow around the least of the maximum amount of the company, as well as, the borrowing base. This is the calculation of the lender regarding the borrowing capacity of the provider. They base this on the sum that they expect the provider to get from their eligible receivables and they reduce this sum to serve as a cushion.
With the advanced financing accounts receivable can offer, healthcare providers will be able to continue their business without the risk of going bankrupt.