Account Receivable Factoring

Having liquidity – the necessary funds to pay suppliers, employees and regular business expenses is critical the success of a business. However, getting business financing has always been a challenging proposition for business owners. And given the current credit environment, obtaining a business loan is very hard. Banks and corporate finance companies are only providing business loans to large corporate clients that have substantial assets.

Liquidity problems are very common for companies that sell to other businesses. In the business to business environment, it is common to offer 30 to 60 days to pay an invoice, especially if your client is a large company. This creates a substantial cash flow problem, since you need to spend money to service your client and then wait to be paid.

There is an alternative. Let’s suppose that you could get 80% of your payment immediately upon delivering your product/service, with the remainder after 30 to 60 days. Would that help your business? Would that provide the necessary cash flow to pay rent, employees and suppliers? A more important question is, would you feel comfortable taking new business if you knew you would get paid quickly?

Accounts receivable factoring can provide the solution. The proposition is simple. You get an 80% advance on your invoices as soon as the work is completed. You receive the remaining 20%, less a small fee, once the invoice is fully paid.

One big advantage of factoring receivables is that it’s easy to obtain. The biggest qualification requirement is that you do business reliable customers. Aside from that your company must be free of liens and judgments. Generally, the set up process takes about a week and after that you can get funding within a business day of submitting a request.

Factoring rates vary and will be based on the quality of your clients and the amount of financing you need. Generally the monthly costs will be between 1.5% and 3% depending on these variables. As rule of thumb, factoring can work well if profit margins are at least 15%.

Receivables factoring provides a great solution for a specific problem – the gap generated between invoicing for services and receiving payment. If you have clients that take up to 60 days to pay, and you need financing to cover business expenses, factoring is a good alternative to conventional business loans.

It happens. Sometimes hospital receivables go awry, at times a lot awry! But how do receivables become out of kilter, and what is the best approach in fixing your organization’s receivable turnover rate?

Reasons for Poorly Performing Receivables

A major contributor to a slowdown in cash collections is that third party insurance companies, Medicare, and Medicaid effectively avoid paying claims by requiring that invoices comply perfectly with their individual requirements. To further burden the provider, they frequently change those requirements.

In addition, hospitals that are in need of an A/R turnaround may have a lack of internal controls (i.e., the ability of the patient financial business office to control itself), low morale, anxiety on the part of the staff, and a staff that lacks the skill sets necessary to perform effectively. Often, contributing factors are that IT systems are not working properly, revenue cycle departments do not collaborate, and management does not provide the necessary support or guidance.

Considerations

When Undertaking an A/R Turnaround If you believe that you need drastic action towards an immediate “turnaround”, you first need to write a game plan (and you will always know what the next step needs to be). This is key! The busier you are, the more you need to plan.

The next important consideration is to determine if you have enough resources to reach your cash and AR objectives. More and more, savvier PFS managers are hiring resources on a short-term basis to work down backlogs. Their hospitals are willing to pay the short term costs associated with obtaining a trained person for the time period required rather than obligate themselves to costs of employing a full-time permanent employee. Interim staff can be an excellent solution to resolve bottlenecks and backlogs. This approach can be very cost-effective if the interim staff is dedicated, capable, and dependable. Another approach used by many health care providers is to outsource portions of it s accounts receivables to an outside vendor specializing in health care receivables and collections. A/R outsourcing has become more common in healthcare as hospitals seek ways to improve their operational performance. Using a specialized medical billing and collection service is often effective, but does not always guarantee proper, timely payment. Good planning is crucial before starting an outsource arrangement. This approach can fail horribly if proper consideration is not given to the key issues, system interfaces are not adequately established, or a long term game plan is not integrated into the process..

Enlisting the assistance of a revenue cycle consultant is another consideration in that most of these individuals are seasoned and have no agenda or bias that may affect the decision-making process. As a result, they make the necessary decisions regardless of the popularity of those decisions or the political implications. Revenue cycle consultants can assist hospital management to re-engineer ineffective workflows, procedures, and processes while spending considerable time in training the staff. These individuals concentrate on managing operational aspects relating to change without becoming unnecessarily wrapped-up in the internal battles that can often sidetrack turnaround efforts.

Beginning a Turnaround Project

Should you attempt an A/R turnaround without any outside interim assistance? If the goal is to create an environment conducive to change as opposed to struggling with the barriers that likely contributed to the receivable problems in the first place, the answer is clearly that, at a minimum, this approach should be given serious consideration. Another important consideration is whether the internal management team has the necessary time to devote to turning around the patient financial services department quickly while operating their day-to-day business at the same time. More and more, in-the-know health care financial managers around the country are getting their business offices in shape by bringing in interim outside help.

Regardless of whether you choose to bring on board outside assistance, there are some basic guidelines to follow in affecting an accounts receivable turnaround:

- Create a sense of urgency to everyone that business as usual must change: Once you decide to go forward, you have to be determined to effectively implement the identified new methods and systems.

- Do not restrict your focus to Patient Accounting: Although patient accounting is where it all ends up, do not neglect the other components of the revenue cycle in performing your assessment and developing a roadmap for change. Patient Access, ancillary departments, and Health Information Management (HIM) are major players in the revenue cycle and inefficient or ineffective operations in these areas can have a significant impact on the management of the accounts receivable.

- Conduct a top-to-bottom operational review including an analysis of billing systems, billing practices, staffing methodologies, staffing levels, and a comprehensive accounts receivable analysis: This should be the first phase in improving revenue cycle performances. Interview all management personnel within the business office and key staff members during the fact-finding effort.

- Develop an action plan: Review the current or most recent training program utilized by the hospital and assess whether revisions or new training program is most appropriate..

- Communicate the vision and set goals with everyone: Be sure you spend considerable time educating the staff on what life will be like after the implementation. Make them part of the process by keeping them informed every step of the way. People are more wary of what they do not know than what they do know.

- Vigorously pursue the collection of all accounts receivable in excess of 45 days: Efforts beyond the usual will be necessary to just maintain the status quo since the change process will inevitably result in some productivity loss in the short term during the transition period. Have your collectors work a couple of “prime-time” evening hours a week, give staff incentives to improve their productivity, and reassign work responsibilities to achieve optimal results.

- Reduce denials: Another main focus area in any turnaround program should be implementation of an effective denials management program. Many healthcare financial managers do not have a good understanding as to the reasons for their payment denials. You will need to have specific policy and procedures surrounding the handling of pre-certification and authorization denials. More significantly, a monitoring process will be required to track the causes on an ongoing basis and continually take steps to eliminate them.

- Eliminate all billing backlogs: Identify those accounts within the accounts receivable that have low probability of collection. Either allowance these accounts or outsource them to a vendor capable of making an effective final collection effort. If you believe that adequate internal resources are, or can be made, available, organize the accounts to be worked in descending balance order, offer overtime if needed, and implement a concentrated follow-up effort. If internal resources are not available consider hiring well-trained interim staff to work on backlogs while the permanent staff concentrates on maintaining current accounts and implementing system, procedural, protocol, and workflow changes. Contracting with a good temp agency lets revenue cycle departments staff up only when they need extra help, holding down costs. Also, in some cases, it is a good idea to bring in a temp when a permanent spot opens as a way to audition a candidate. More and more hospital patient accounting departments are incorporating temp workers in long-term plans, whereas 10-15 years ago they used temps just to fill occasional holes.

Achieving Success

As hospitals deal with the ever changing financial environment, the billing and collections operations is one of the most crucial aspects of managing a healthcare business. Cash-starved health systems are generally the victim of a declining A/R turnover rate and a deteriorating A/R aging schedule.

Turning around a troubled revenue cycle is no easy feat. Most hospitals first need to determine precisely what is wrong with the infrastructure of their revenue cycle, and then construct a workplan that will achieve the necessary changes while maintaining cash flow in the interim.

Whichever road you decide to take during a Patient Accounting turnaround attempt, remember that proper planning and allocating the right resources to produce maximum benefits are the keys to the success of any A / R recovery effort.

Quickbooks software provides for end of year preparation of taxes. Simply scroll up to the Reports tab and click on Accountant & Taxes and print the Tax Preparation Report along with the end of year reports, the Profit and Loss Statements and the Adjusted Trial Balance Sheets.

Be aware that unless your Quickbooks software is set up correctly on day one, you could end up paying far too much in taxes, or worse (despite the immediate ‘positive’ result) paying too little. The services industry in Florida benefits from the non-taxable nature of services, however, the company may still be responsible for the collection of sales taxes if their services result in an alteration to property. i.e. A business which designs vehicle wrap advertising and attaches that advertising to the vehicle even if the actual attaching accounts for only 5% of the work involved must charge, collect and pay sales tax on 100% of the sale. Check with the Florida Department of Revenue and reverify the requirements to file quarterly returns for your sales tax and ask your accountant.

Are you incorporated? Then whether you are alone in the business or not, you have an employee! Yourself! And having an employee, you are responsible for filing for Federal and State Unemployment tax. If you haven’t, you may want to consider filing an amended FUTA and SUTA return to avoid penalties!

Why would any business owner pay into the hundreds of dollars to file their federal return, when it’s a simple matter of getting the right figures and plugging them into either the 1120 or 1120S forms? Homesoon Accounting does not charge more than $300 for a federal return for corporations and rarely more than $150 for a personal return. Ask about the discount for filing both!

(The exception occurs for day-traders with many trades, there will be extra charges for time.)

For a quote on your return please send a pdf of your PL statements and income tax summary via email and we will Contact for more information.

Having started with the income statement yesterday, I might as well continue on with the balance sheet. The balance sheet is divided into two sections, the assets and the liabilities and stockholders equity. This may sound like three sections (and it is), but the point of it being thought of as two sections is illustrated in the following equation:Assets = Liabilities + Stockholders EquityAssets being what you have, liabilities being what you owe, and stockholders equity being what you own.Assets

Current assets: Assets that are expected to be turned into cash within the next year, including

Cash (and cash equivalents)
Accounts Receivable
Prepaid Assets

Other assets include

Net property plant and equipment (the full cost of your PPE minus accumulated depreciation)
Goodwill
Other long-term assets, such as deposits, prepaid multi-year licenses, etc.

You total all of these numbers to get your asset total number.Liabilities Current liabilities: Liabilities that are expected to be paid within the next year, including

Accounts payable
Wages and related costs payable
Current portion of long term debt (the part of your multi-year loan you expect to pay this year)

Other current payables

Long-term debtDeferred tax liabilitiesOther long-term obligations

This is your total liabilities.Stockholders EquityThe equity is the outstanding shares times the par value plus the paid-in capital. In general, this is sort of an anachronism, but when you issue shares you place a par value on them, often $0.01. If you issue 100,000 shares, your par value is $1,000. Let’s say you invested $30,000 in your company. Your common stock line would say $1,000 and your paid-in capital line would say $29,000.The next line is retained earnings. This is how much your company has retained from the earnings after paying out expenses and dividends.Add these items together to get your stockholders’ equity.Add the stockholders’ equity and the liabilities together and it should equal the total assets. If it does not, then there is an error. Never ever hand a venture capitalist or banker a balance sheet that doesn’t balance. That will peg you in a second as someone who has no clue about finances.

For an Excel example of the financial statements working together, view my article on Building A Cash Flow Statement

Bookkeeping is a time consuming and tedious but essential task for businesses. Moreover, it can be quite expensive as it entails accountants’ salaries – very likely substantial – and benefits over and above the cost of training them. Though hiring a proper staff for bookkeeping may fit the budget of many small business ventures, often, after the expense on training accountants in bookkeeping, in due course, companies find that they can not afford to hire these accountants permanently.

To conserve the budget for in-house bookkeeping, a company may opt for outsourcing bookkeeping work – a portion of it or its entirety. Savings on the cost of training and retaining an in-house bookkeeping staff translates into lower capital expenditure. Additionally, shifting some of your workload to others saves you time and allows you to perform efficiently in other areas of your business. Therefore, outsourcing bookkeeping saves time and money. Time and money saved can be utilized for strengthening core sectors of the business and expansion, both of which increase profit.

Yet another benefit of outsourcing bookkeeping is enhanced efficiency. Usually, because of the multitasking nature of work in businesses, a person or a company is unable to give its best just when it is needed most. In this instance, it makes perfect business sense to outsource bookkeeping work to accounting firms. The professionals at outsourcing bookkeeping firms lay great emphasis on expertise and proficiency. Because professionals at specialized outsourcing bookkeeping firms have the advantage of being able to concentrate on maintaining your accounts, they do the work in much less time than in-house accountants. Plus, they can take each and every step of bookkeeping very carefully thus producing meticulous work.

Many outsourcing bookkeeping firms have specialized software for managing accounting transactions. This spares your company the time and expense required by acquiring and maintaining software, as well as training accountants in software manipulation.

Bookkeeping outsourcing online is especially beneficial to small and medium business firms. Online accounting services generate additional savings in time and manpower – time and manpower that would otherwise be spent on visits to the offices of professional bookkeeping firms. Again, the time and energy thus saved can be redirected towards other sectors work or expansion.

Internet Accounting outsourcing also creates additional savings on maintenance costs of computers, training costs, fixed costs and overhead. Accounting Network of Indian outsourcing companies is especially great when the nominal rate they charge for the provision of effective services.

It’s a known fact that companies that obtain bankruptcy financing have a much higher chance of emerging out of chapter 11 as a viable company than those that don’t secure debtor in possession financing. However, obtaining DIP financing has always been a challenge. There is the obvious reason that insolvent companies can be risky investments for commercial finance companies, so not many companies offer the product. And for the most part, DIP financing has only been offered by banks and corporate finance companies to large companies. Because of this, many small and medium sized companies were never able to secure financing and went out of business.

Recently, the trend has been reversing and a growing number of finance companies have begun offering specialized forms of bankruptcy financing to small and medium sized companies. Although still not widely available, a number of small businesses have been able to secure DIP financing and emerge from bankruptcy.

One of the biggest challenges that bankrupt companies have is that they lose control of all their bank accounts as soon as they declare for bankruptcy. Most assets up to the point of filing for bankruptcy have to be used to satisfy past debts. If your customers take 30 to 60 days to pay their invoices, that means that you may have to go without much liquidity for a number of weeks, unable to pay employees or buy new supplies. Factoring financing is a form of DIP financing that can help in these situations. Factoring accounts receivable provides you with an immediate advance on your slow paying invoices, supplying the needed funds to pay employees and suppliers. Factoring receivables provides you with the liquidity and breathing room to run your business while you navigate the chapter 11 bankruptcy process.

Qualifying for factoring is relatively easy. The biggest requirement that factoring companies have is that you sell products/services to credit worthy commercial customers who pay in less than 90 days. Factoring works best if your customers pay in 30 to 45 days and if your profit margins are at least 15%, but is flexible enough to work in other situations.

One substantial advantage of accounts receivable factoring is that is readily available to small and midsized companies. Like any form of debtor in possession (DIP) financing it will need to be approved by the court. And, it better to seek financing, DIP and failures, as well as provide a more solid basis in the week immediately after a critical error.

Private Equity markets in Australia include both private equity funds, venture capital funds and other capital providers including both equity and debt financing.

The private equity market in Australia is relatively small, but nevertheless a growing market especially during the 2000-2007 era.

In the recent 5 years, a significant increase of new Asian based private equity funds operating or setting up their representative office in Australia. The leading Asian private equity funds are typically from Japan or Singapore at this stage, but other State-owned, especially Chinese owned private equity firms have been increasing their activities in Australia especially in the mining and resources sectors.

The majority of private equity firms based in Australia are interested in the traditional businesses or IT related businesses – which are mainly taken up by venture capital funds. Private Equity firms in Australia have been largely responsible to take over established businesses including retail and manufacturing industries, a lot of deals were debt funded with very high gearing ratios, which is now causing concerns to some of the acquired companies.

In 2008, there was a starting of consolidation amongst private equity firms in Australia. Some were led by wealthy Australian families, some were acquired by corporate advisory firms or investment firms from overseas as a way to diversify their interests geographically.

In the medium term, further consolidations to occur in Australia, both the medium and large sized private equity firms. We are already seeing increasing number of European and US private equity firms selling stakes to Asian based private equity funds including many State owned sovereign funds, the similar trend is also likely to occur in Australia.

Australian private equity funds tend to operate differently than other private equity funds in the world – because of the nature of the business and heavy emphasis on mining and resources. However, this is set to change because of the rapid deterioration of mining sectors in Australia.

The Australian investment market is certainly changing, and is now forming very close ties with Asia. The newly elected labour Government in particular has announced strong ties with China, and has opened for direct investments allowing Chinese nationals to invest directly in Australia – previously this was usually done through a representative or delegate in Australia.

Although the real impact is too early to predict, there has been increasing number of direct investments from Chinese financial institutions such as CITIC lately, and the recent strong investments in Australia’s Rio Tinto is another good example how Chinese or Chinese Government sponsored private equity firms have now taking strong interest in Australian assets.

If you are thinking of owning a business, then you may need huge financial help as there are many expenses to be met. Therefore business starts up loans become a part of beginning a new trade. But, since you are entering a new field, these loans should be availed of after a carefully assessing your needs and circumstances.

First of all you should get copies of your credit report for correcting all the details of your payments that you made in the past. The lenders will go through the report for assessing the risks and for setting the terms and conditions of the loan. In case, your credit rating is currently lower than acceptable levels of 600, then pay off some old loans for improving the rating before applying for the loan. You should also be ready with a plan of investing the loan.

Business start up loans can provide finance in secured or unsecured options for variety of purpose like buying machinery or equipments, raw material, paying the salaried of employees, purchasing office furniture etc. the secured loan can provide big amount of finance, depending on a percentage of value of the property that the borrower has to pledge for collateral. Such a huger loan can be repaid in 5 to 30 years. The loan is associated with low rate of interest.

The unsecured loan option can give you only small amount of £10000 to £25000 for short-term of 5 to 15 years. No collateral is required to be pledge to borrow the money. However, interest rate will be on the higher side. But the rate is usually fixed, allowing you to plan the installments in advance.

Numbers of offers of unsecured business loans can be cited on internet. Do not rush to them. Instead, apply for their rate quotes for finding a loan at competitive rates. This way, even people with bad credit history of late payments, defaults and arrears can find these loans at comparatively lower rate. Repay the loan on time for escaping any debt.

To earn profit is the motto of any business. Before starting any new business, all big and small organization plans about their various departments. In any business organization, we find branches like human resource, technical branch, public relation, administrative department and last but not the least the accountant department. The accounts department is a very important section. To calculate the profit and loss of any business requires a lot of brain work. If a single penny is calculated wrongly, then a company has to suffer a huge loss. Accuracy is the trademark of accountancy. Therefore, it is very necessary that a company hires an efficient accountant who could look after all their dealings regarding account in a proper way. Today, accounting outsourcing is getting much prominence. And companies are finding it more effective than hiring any individuals from the accounts background.

This section is the heart and soul of any organization. The work involves lots of patience and dedication. Accounting is a huge task and involves many things like maintaining balance sheets, making profit and loss statements. It also includes things like maintaining journal sheets, keeping a track of the ledger books, having a thorough check on the bank reconciliation statements and many more things. An accountant should be very accurate in his dealings. His minute wrong may prove to be a big blunder. Companies are finding offshore outsourcing accounting very effective. It is capable to give them an error free work as well as analyzing their status in the market.

An accountant is an important organ of an organization. He needs to work on bookkeeping and financial outsourcing needs. There are many private firms that offer accounting outsourcing facility at a much cheaper price. You need to hire the best professional for your organization for keeping all your accounts correctly. An expert accountant not only takes care of your finance but he will also give you a clear picture as where does your company stand in the present competitive market. Internet is the easiest way to get information about the various private firms that provide accounting outsourcing. India excels in this field. United States, United Kingdom any many other countries are taking the services from India.

There are several advantages of accounting outsourcing. They are-(1) An offshore service is reliable and competent and simplify the work.(2) This relieves the company from the tedious job of accounting bookkeeping and (3) It saves office space and related expenditure.

It is cost effective. They can now feel that their company is in the safe hand. This is flourishing day by day. And companies are taking full advantage of it. It is a fast growing business. Internet will help you to know about the various firms that provide accounting outsourcing. Accounting is a tough job and basically owners do not have much idea regarding it. They rely on their services for the account or they choose for outsourcing of accounting.

Does your company have a lot of sales and not a lot of cash at hand? This situation is very common if you allow your customers to pay their invoices in 30 to 60 days. As a matter of fact, most new and growing business have this challenge. They have a lot of money owed to them by clients, but little actual cash in hand.

Many business owners – and perhaps yourself – try to address this problem by demanding quicker payment from clients. Unfortunately, that seldom works. Both commercial and government clients pay on set schedules, and, waiting to be paid is part of the cost doing business. Others try to approach a bank looking for a business loan. Unfortunately, business loans are very hard to obtain. Most banks will ask for 3 years worth of proven financial statements before offering any business financing. It may appear as many businesses have few available financing options. Actually, there is a solution for this problem and it’s surprisingly easy to obtain.

Let’s say that instead of waiting 30 days to pay, your clients made you the following offer. They will pay you 80% upon receiving the goods/services and then pay the remaining 20% after 30 days. Would some, if not all, of your cash flow issues disappear? Factoring your invoices can offer you a similar proposition, without asking your clients for faster payment terms. You get an advance of 70% to 90% from the factoring company as soon as you deliver your product or service. You get the remainder, less a small fee, as soon as your customer pays for the invoice. Invoice factoring provides you with predictable cash flow and helps you ensure you can pay business expenses and employee salaries on time.

Factoring companies offer a number of advantages over conventional banks. Factoring financing lines are flexible and tied to your sales. That means that your financing facility increases as your sales increase. Furthermore, they are relatively easy to obtain and can be set up in about a week or so. The biggest requirement is that you have sales to good paying clients, such as reputable companies or government agencies.

The costs of factoring your invoices vary based on the size of your financing line and the credit quality of your customers. Generally you should expect to pay between 1.5% and 3.5% per month based on these criteria. Factoring invoices is one of the most effective strategies to stabilize your cash flow, a platform for strong growth.