When a business owner starts 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.
Understanding Medical Supply Company Funding Needs
Medical supply companies require financing to maintain a steady supply of medical equipment, manage cash flow, and cover business expenses. The medical industry is highly competitive, and companies need to stay up-to-date with the latest technology and equipment to remain competitive. However, purchasing medical equipment can be expensive, and many business owners struggle to secure funding through traditional bank loans. Traditional bank loans often come with stringent requirements and a lengthy approval process, making it challenging for business owners to access the necessary funds promptly. As a result, exploring various funding options becomes crucial for sustaining operations and fostering growth.
Invoice Factoring for Medical Supply Companies
Invoice factoring is a financing option that can help medical supply companies improve their cash flow and access the funds they need to grow. Factoring companies purchase outstanding invoices from medical supply companies and provide a cash advance, typically 80-90% of the invoice face value. This allows medical supply companies to receive immediate payment for their invoices, rather than waiting 30, 60, or 90 days for customers to pay. By converting receivables into instant cash, invoice factoring helps businesses manage their cash flow more effectively, ensuring they can meet their financial obligations and invest in new opportunities without delay.
Bank Loans for Medical Supply Companies
Bank loans are a traditional financing option for medical supply companies. However, the loan approval process can be lengthy and requires a strong credit history. Medical supply companies may need to provide collateral, such as medical equipment or property, to secure the loan. Additionally, bank loans often have strict repayment terms, which can be challenging for medical supply companies with fluctuating cash flow. The need for detailed financial statements and a solid credit profile can make traditional bank loans less accessible for many business owners, especially those in the early stages of their business or experiencing rapid growth.
Alternative Funding Options
In addition to invoice factoring and bank loans, medical supply companies may consider alternative funding options, such as:
Medical Equipment Financing: This type of financing allows medical supply companies to purchase or lease medical equipment without a large upfront payment. It helps businesses acquire the latest technology and stay competitive without straining their cash flow.
Lines of Credit: A line of credit provides medical supply companies with access to a predetermined amount of funds, which can be drawn upon as needed. This flexible financing option helps manage cash flow and cover unexpected expenses.
Equipment Financing: This type of financing allows medical supply companies to purchase or lease equipment, such as medical imaging equipment or surgical equipment. It spreads the cost over time, making it easier to manage large expenditures.
Evaluating Funding Options
When evaluating funding options, medical supply companies should consider the following factors:
Cash Flow Management: How will the funding option impact the company’s cash flow? Ensuring a steady cash flow is crucial for meeting ongoing business expenses and investing in growth.
Interest Rates: What are the interest rates associated with the funding option? Comparing rates helps in understanding the cost of borrowing.
Repayment Terms: What are the repayment terms, and are they flexible? Flexible terms can help manage cash flow more effectively.
Collateral Requirements: Is collateral required, and what type of collateral is accepted? Understanding collateral requirements helps in assessing the risk involved.
Approval Process: How long does the approval process take, and what are the requirements? A quicker approval process can provide timely access to funds.
Factoring Fee: Is there a factoring fee associated with the funding option, and what is the fee structure? Knowing the costs involved helps in making an informed decision.
By carefully evaluating these factors, medical supply companies can choose the funding option that best meets their needs and helps them achieve their business goals.
