In my previous articles, I've explained how medical
transcription companies can benefit greatly by selling
their receivables to a factor in order to increase their
cash availability. Instead of waiting weeks or months to
receive payment, medical transcription services can factor
their invoices and get paid within days.
I also discussed reasons why it's important to shop around
for an accounts receivable factor who will best meet your
medical transcription funding needs. I went over many
different things to consider when choosing a funding
company, including its size, location and area of
specialty. In addition, I explained some of the general
economics to consider (discount fees and advance rates), as
well as a range of common additional fees.
In the final part of this series, I will discuss differing
terms of contractual agreements and what to compare,
variations of the invoicing process and which scenarios
would work the best for your medical transcription
financing needs. I will also review the various reporting
capabilities that factors offer their clients.
As is the case whenever you enter into a legal business
relationship with another entity, factoring companies will
require that you sign a contract. It's important that you
read through it and be sure to ask questions. One big
thing to look for in a contract is whether or not the
factor has monthly minimums/maximums. For example, some
factors will require that you factor at least
$50,000/month, which shouldn't be a problem if you are
invoicing over $100,000 every month. Keep in mind that
most factors will implement a penalty fee if you do not
meet the minimum monthly factoring amount. On the other
hand, a smaller factor may not have a minimum amount, but
they might have a maximum amount instead. So if a factor
says that they can only fund up to $500 thousand in a
month, and you know that your company does well over $1
million in sales every month, you will have to keep
searching.
Another very important issue to look for in a medical
transcription funding company is the length of time that
you are required to remain in the factoring relationship.
Some factors are more accommodating in this area than
others, providing you have the flexibility to choose how
long you want to factor. Still, other factoring companies
will require you to sign a term-contract for 12-24 months.
If this is the case, the factor will also charge an early
termination fee if the contract is broken before the term
expires. Every company enters the funding equation at a
different point. For example, where one business may only
need to factor for a few months to get them through a small
cash flow jam, another company may use factoring for years.
Having an estimated length of time in mind will make it
easier for you to find a medical transcription factoring
company whose terms are conducive to your business' needs.
Also included in the contract will be details on the type
of guaranty that the factor will require before funding
your invoices. Although there are a few factors that will
not require a guaranty, the majority of them will want
either a personal guaranty, whereby the seller is
personally responsible for any unpaid invoices, or a
validity guaranty, in which the seller guarantees that all
of the invoices that are sold to the factor are valid, were
prepared after services were rendered, and that the
customer has agreed to pay them.
It's also necessary for you to understand what the
invoicing process will be like after you have chosen your
factoring company. A question that I hear frequently is
"How soon can I be funded?" The answer to this question
can vary from days to weeks or perhaps months. In order to
set up a company for its initial funding, a factor requires
you to fill out and return legal paperwork, including an
application, contract, and a tax information form. In
addition, you may be required to send in a current accounts
aging report, federal tax returns, copy of your trade name
certificate or fictitious name filing, articles of
incorporation and bylaws, customer lists, copies of
invoices, copies of driver's license, a copy of a voided
check, etc. Because there are legal documents involved and
liens have to be filed on your medical transcription
receivables, the factor can usually move as quickly as the
completed paperwork is received. In most cases, 5-7
business days is the average amount of time it will take to
receive your initial funding. From there on, the funding
process will most likely speed up to 2-3 business days
after you present invoices to the factor. There are some
factors that can deliver same-day funds via a wire
transaction, but just be aware of the fact that there will
be fees associated with the amount of time it takes for you
to receive funds into your account. For example, a
same-day wire transaction will often cost you more than an
overnight ACH transaction.
Another topic involved with the entire funding process is
what's known as the "reserve account." Reserve is the
percentage of an invoice amount that the factor will hold
onto until it receives payment from your customers. This
reserve amount will eventually be released back to you once
your invoices have been paid and the factor has collected
its fees. For example, let's say that you have an 80
percent advance rate and 20 percent is held for reserve.
Let's also say that your invoices were paid within 30 days,
translating into a three percent discount fee. The initial
20 percent minus the three percent discount fee equals 17
percent, which is due back to you. Some factors will have
automatic reserve releases weekly, some every other week or
some monthly. Then there are some factors who will not
release the reserve unless it is specifically requested by
their client. You also want to consider whether or not
you want a factor to handle all of your back office
services including billing, collections, issuing payroll,
etc. Some factors will do a portion of the back office
services and some will only act as a funder. Just remember
that if you choose a factor that is willing to do all of
your back office services in addition to funding, there
will most likely be extra fees associated with the extra
work. You may prefer to hand the entire billing and
collecting process over to a factor so that you can focus
your efforts on other areas of growing your business. Or
you might want to work with a factor that will process and
mail your invoices in addition to collecting while you
continue to run the company's payroll in-house. Perhaps,
you would feel the most in control if you continue to
invoice and collect and do your own payroll in-house.
Whichever you choose, there will be a factor out there that
is with the best fit for you.
Finally, the last thing that you should look for when
choosing a factor is if you have access to financial
reports concerning your clients' payments. Most factors
keep a detailed account of your customers' payments. Just
because the factor runs these reports for his/her own
knowledge does not necessarily mean that they will share
them with you. Some factors will provide you with
weekly/monthly reports via e-mail or snail mail, and some
factors can provide you with real-time reporting. This
means that as soon as a payment is posted to your account,
you can view it online and see the same screen that the
factor sees. Having access to these reports is a good way
for you to learn more about your customers. For example,
if you notice that one of your client's invoices is
approaching 60 days, and you don't want to have to pay the
fees for those extra days, you could call that client and
try to get the invoice paid sooner. Or if your factoring
company handles your collections, you could also call them
up and request that they work their collections on that
particular account harder. Whichever way you choose to
address the situation is completely up to you, but also
keep in mind that having the option to view the reports in
the first place is an important one.
In its entirety, these articles have addressed multiple
ways to help you find the right factor for your business.
Like I stated at the beginning of this series, there are
thousands of factors out there, each with their own
advantages and disadvantages. So it's extremely important
to look at the all-encompassing package of what each factor
has to offer before you make your final decision. The best
thing to do is to ask questions and listen for the answers
that will best suit your medical transcription invoice
factoring needs.
----------------------------------------------------
Philip Cohen is the founder and president of PRN Funding,
LLC, which is an extraordinarily focused niche player in
the healthcare staffing invoice financing market place.
Through a process known as factoring, PRN Funding provides
business owners with the financial resources needed to grow
and compete in the industry. Contact Philip Cohen at
866.776.5407 or pcohen@prnfunding.com. Please visit PRN
Funding on the web at http://www.prnfunding.com .
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