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Written by Gregg Elberg
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Thursday, 05 April 2007 |
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Word Count: 802 Medical Accounts Receivable Financing-Stat!
According to the U.S National Library of Medicine and the National Institutes
of Health Medline dictionary the word “stat is an adverb for the latin word:
STATIM. Statim is an adverb that means immediately or without delay. When a
persons arrives at the hospital emergency room with a gunshot wound, the staff
might say, “We need to get this patient to surgery stat!” meaning immediately,
now. In a medical situation “stat” connotes extreme urgency. Does your medical
business need to accelerate cash flow with accounts receivable financing “stat”?
One of the greatest challenges for medical professionals is managing their
accounts receivable. Medical accounts receivable typically are the largest asset
on their balance sheet. It typically takes 60 to 120 days or more to collect
medical accounts receivable because of the long reimbursement process from third
party payors, such as Medicare, Medicaid, and commercial insurance companies.
The collection process is long and complex. Disputes regarding payment amounts
are common. Medical accounts receivable financing accelerates cash flow to pay
for expenses such as payroll, malpractice insurance, rent, inventory and
advertising.
What are the types of medical professionals that may qualify for medical
accounts receivable financing? The following is a partial list: hospitals,
medical centers, rehabilitation centers, medical laboratories, surgical centers,
sports medicine centers, MRI imaging centers, physical therapy centers,
substance abuse clinics, physical therapy centers, manufacturers and/or
distributors of medical devices, and physician’s practices whether general or
specialized from A to Z such as anesthesiologists, gastroenterologists,
obstetricians, and Zygote – Morula Specialists.
How lengthy is the process to obtain medical accounts receivable? It generally
takes four to eight weeks to obtain funding because of the unique issues
presented. The commercial finance company must perform extensive audits and
analysis of the prospective client’s financial situation. They need to determine
that the business is and will be a “going concern”. They need to examine billing
practices which often are outsourced. This may require a separate audit of a
third party. And they need to examine the forseeability of collection of the
outstanding accounts receivable by auditing the accounts receivable aging
reports from a historical collection perspective. In other words, how much of
the amounts owed will be collection losses? How much will actually be collected?
What are other unique issues regarding medical accounts receivable financing?
There are potential bankruptcy issues, lien priority issues and the “big bad
wolf” issue: after a commercial finance company has purchased medical accounts
receivable, the federal trucks & SUVs">government can assert lien priority on the assets of a
bankrupt medical company. One example of this is the case of American Investment
Financial (“AFI”) versus the US also known as the internal revenue service.
AFI loaned over $800,000 to a pediatric and urgent care clinic. The clinic
defaulted on their financial obligations to AFI and also defaulted on their tax
obligations to the federal government. It was undisputed that AFI had followed
the rules correctly in terms of filing their liens and perfecting their security
interests. Nevertheless, the court held that pursuant to Federal law, after a 45
day statutory safe harbor period had passed, the government’s lien took
priority. AFI lost hundreds of thousands of dollars because of federal tax law
and IRS regulations. It is no wonder that commercial finance companies look very
carefully before they purchase medical accounts receivable.
Commercial finance companies will generally advance an amount equal to 70% to
80% of a borrowing base, which may be called “the aggregate amount of eligible
accounts”, “net realized value” or “net expected collections”. You can expect
the following items to be excluded from your borrowing base: accounts which are
subject to dispute, counterclaim or setoff; accounts of any account debtor who
has filed or has filed against it a petition in bankruptcy; accounts owed
directly by patients or customers.
The bottom line: medical accounts receivable financing, or medical factoring, is
more difficult to obtain than other types of factoring because of the legal
risks and business risks faced by the lenders. The process to obtain medical
accounts financing usually takes much longer than accounts receivable financing
for other industries, such as a manufacturer. This good news is, once the credit
facility is established, funding can take place in a day or less from your
request for financing. You can have medical accounts receivable financing
“stat”!
Copyright © Gregg Financial Services
www.greggfinancialservices.com
Mr. Elberg is a licensed attorney and licensed real estate broker. Gregg
Financial Services is a full service brokerage for commercial finance companies
and banks that fund B2B businesses. Mr. Elberg arranges funding from $25,000 to
$50 million per month at competitive pricing, and works to reduce your financing
costs as your company grows. For more information about GFS, please visit our
website: http:www.greggfinancialservices.com
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