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Funding Options for Medical Supply Companies: Banks vs. Factors

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By Phil Cohen

When business owners start comparing medical supply funding options, accounts receivable factoring almost always comes out more expensive.  This is because oftentimes medical supply business owners tend to annualize the percentage charged by factors. Unfortunately, when business owners do this, it appears that an invoice funding firm that charges 3% every 30 days is equivalent to a bank charging an interest rate of 36 percent per year.  In the world of medical supply financing, this evaluation couldn’t be further from the truth.

1.)  A factor does not loan money like a bank does.  Banks loan a lump sum and charge an annual interest. On the other hand, a medical supply funding firm purchases accounts receivables at a discounted rate for a short amount of time (between 15-90 days).  Because invoice funding is a type of short-term financing and because invoices typically do not take a year to be paid, it does not make sense to annualize the percentage rate.

2.)  Moreover, a medical supply funder is continuously advancing and collecting accounts receivable, compared to a bank that provides the money only one time, the day that the loan is received.  An medical supply accounts receivable funder has the ability to grow as its clients grow.  Once a company uses the funds from a bank loan or exceeds its credit limit, there’s no room for it to grow.

3.)  Banks approve business loans or lines of credit based on a medical supply company’s historical operating and financial performance, compared to a factor whose main criteria is the creditworthiness of a prospect’s customers.  Banks tend to shy away from medical supply companies who are just starting up, going through seasonal growth, have bad personal credit or have too much concentration of their sales with one or two customers.  Most factors are able to look past the above criteria because their decisions are based off of a prospect’s customers’ ability to pay.

4.)  The loan process with a bank is time-consuming and cumbersome, and it could take months to receive the loan proceeds.  Whereas a factoring firm’s medical supply invoice help can take as little as a week, and medical supply invoice funding firms have an ongoing ability to approve additional lines of credit quickly.

5.)  Oftentimes, a bank loan requires upfront collateral in addition to a medical supply company’s accounts receivables.  The only collateral that a factor requires is the company’s accounts receivables.  Moreover, a bank will most likely require business owners to personally guarantee the loan as well. Whereas, factoring companies won’t always require a personal guarantee prior to advancing funds on receivables. This criteria proves factoring can be a very advantageous medical supply funding option.

6.)  When looking for medical supply funding options taking out a business loan creates debt on a company’s balance sheet, and credit ratings go down because of loan limitations.  On the other hand, factoring increases credit ratings by creating better cash flow for medical supply companies and it helps them pay their bills promptly.

When looking at your medical supply funding options, entrepreneurs have to weigh the costs of invoice funding against not having immediate cash.  More often than not, the decision comes down to either selling their accounts receivable or putting up with crippling cash flow problems and missed sales opportunities.

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Phil Cohen

About the author

Philip Cohen is the founder and President of PRN Funding, LLC. PRN Funding is an extraordinarily focused niche player in healthcare funding. With years of…... Read More

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