Locating Money Sources

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Locating Money Sources For Your Medical Coding Business

Money Sources for Your Medical Coding Business

By: PRN Funding

PRN lets you get paid fast!!!! Receive immediate cash for your medical services. Convert your accounts receivable into cash within 24 hours!

Whether you are just opening your doors or you are a seasoned veteran in the medical coding industry, one thing's for sure-cash flow is a crucial concern for any business owner. The bottom line: If you don't have enough readily available cash to pay your employees, contractors, suppliers, and creditors you won't stay in business for long.

Defined as the movement of money in and out of a business, cash flow is the heartbeat of a thriving medical coding business. Hence, the timing of its movement is extremely important to a company's overall health. Ironically, it's when business is booming that a company may start to have cash flow problems. Not only does more business create larger volumes of accounts, new growth opportunities also means purchasing new equipment and software, hiring additional coding specialists and possibly opening additional offices. In a nutshell, as a business grows, so too does its need for capital.

There are many reasons in addition to rapid growth that could explain why a company would need additional working capital. For example, seasonal influxes, local or national economic conditions, external economics and poor management decisions could all negatively or positively affect a business' cash flow at any given time.

Regardless of what has caused the increased need, it's important for medical coding business owners to take the proper steps in identifying that need, analyzing it and preparing to help improve the company's bottom line and fill in any cash flow gaps.

Inflows, or sources of incoming cash, generally come in the form of customer payments. The typical invoice in the placecountry-regionUnited States is paid in 45 days. The typical hospital takes longer, and physicians are all over the board. Keep in mind the impact of 15 days of receivables outstanding can be dramatic; So the first step a smart business owner can take to prevent headaches from the start is to have procedures in place to pre-screen the creditworthiness of potential clients and formalize a credit policy within his/her contracts.

Taking the time to invoice effectively after approving clients is an extremely important second step. Distributing invoices in a timely manner with the appropriate documentation is half the battle. Making sure the invoices are sent to the right person/department will also affect the length of time it takes to get them paid. The invoice should specifically articulate the terms of payment as well as reference penalty for late payment, if any. Some other ways to ensure speedy payments are to consider accepting credit card payments, requesting deposits or pre-payments and staying on top of collections.

Another thing medical coding service owners can do to help their cash flow is to create a working cash flow budget, which should include the following: a sales forecast with projected cash inflows (account receivable aging schedule) and projected cash outflows (payroll and tax obligations, operating expenses, upcoming purchases and current debt obligations). Upon reviewing the cash flow budget, a business owner will know if his/her company's capital needs exceed its capabilities. If this is the case, then it's time to consider funding options.

Before approaching any source of capital, it's important for the owner to do his/her homework. For example, if a business owner cannot answer the following questions, then the owner is not really ready to solve his/her company's cash flow problem.

How much money do I need?

How long will I need additional capital?

What do I plan to use it for?

How will the money improve my business?

How am I going to pay it back?

If Plan A doesn't work, what is my back-up plan?

Before seeking external sources of capital from investors or lenders, a temporary medical coding business owner should thoroughly explore all reasonable sources for meeting its capital needs internally. Even if this effort fails to generate all of the needed capital, it can sharply reduce the external financing requirement, resulting in less interest expense, lower repayment obligations, and less sacrifice of control. In addition, lenders and investors will be more willing to commit to lending if they see a business has already taken the steps to try to solve the problem internally. Some things to explore are increasing retained earnings, liquidating nonproductive assets, establishing more rigorous credit standards for customers, personally investing in the business and/or paying the company's suppliers a little slower than usual. Of course each of these options has their own benefits and disadvantages, so it's important to think through each before adopting one or all of them.

After running through the options above, the next best thing is to start researching debt capital options, namely banks, savings and loans, and commercial finance companies.

For short-term borrowing, the first step is to go to a commercial bank. Credit lines are reserved for businesses that have already established themselves as being worthy of short-term credit and the amount needed fluctuates from time to time. While lending institutions all have different standards; this is a particularly difficult time to qualify. A general rule of thumb to be considered a viable candidate for a commercial loan requires a business to have three years of operating history with at least two of these years being profitable. The profit should be significant enough that the business has positive retained earnings or owner's equity. The exact amount to be borrowed can vary according to the needs of the business but cannot exceed its established credit line.

Long-term borrowing comes into play when a business intends to borrow a lump sum and make payments on a regular basis until the loan is paid in total. When dealing with long-term bank loans, it's important to have a good understanding of the repayment schedule in order to plan accordingly.

The criteria which businesses must meet in order to qualify for a bank loan can be long and onerous. A bank evaluates the company's capacity to repay the loan, scrutinizes the owner's personal character, wants to know what kind of collateral can be used in the event that the loan cannot be repaid, will need to see a proven track record of the business' profitability and also takes into account any current economic conditions.

Being approved for a traditional loan may sound daunting, but there are a few things business owners can do in order increase their chances of being approved. Developing a relationship with a banker, moving accounts, fee income, wires and credit cards to that bank, and being honest and insightful about the business' challenges are all ways a medical coding business owner can show the lender that he/she is a good candidate to receive the loan.

When considering funding options, a business owner also needs to understand the difference between a secured loan and an unsecured one. With a secured loan, the borrower pledges certain assets as collateral to protect the lender in the event that the borrower defaults on the loan. When it comes to long-term borrowing, fixed assets such as real estate or equipment are usually pledged as collateral. For short-term borrowing, inventories and/or accounts receivables are usually pledged.

With an unsecured loan, the note holder does not have the same protection as a secured lender because it does not ask for pledged collateral. So if a company defaults on an unsecured loan, the creditor can only re-negotiate the amount due or force the company to liquidate. The advantage to this arrangement is the borrower does not have to pledge collateral to secure the loan. However, the disadvantage is that interest rates are much higher and this type of loan is much more difficult to secure.

Outsourcing the company's accounts receivables to a factoring firm is another option for a growing medical staffing firm. Within a factoring arrangement, the medical coding business sells its accounts receivable to a factor (buyer), which immediately converts them into cash. The factoring company will generally advance 80 percent of the invoice and then works to collect on them, giving the business owner the ability to focus on other areas of operating his/her business. Factoring is generally easier for a business to qualify for than a traditional loan as the credit decision is based upon the creditworthiness of the nurse agency's customers rather than the business itself. Many factors will work with start-up businesses and will fund receivables without requiring the personal guarantee of the business owner allowing the owner to protect their personal assets. Factoring agreements generally allow for generous “lines of credit” as factors are able to increase their funding as the medical coding business grows.

The final option for business owners to consider when it comes to financing is equity capital. Finding investors is difficult and takes a lot of networking and creditability building, but the results of such efforts is equally rewarding. Because equity capital is permanently invested in the business, there is no legal obligation for the company to repay the invested amount. If the business thrives, selling equity in your business can often be the most expensive source of financing as the business owner has sold a percentage of their future profits. Some sources of equity include: friends and family, Angels and Angel Networks and venture capitalists.

This article has gone into great detail about how the need for capital arises and discusses the different approaches medical coding business owners can take in order to establish a balanced cash flow. In the end, if a business owner is willing to routinely analyze his/her company's cash flow and respond accordingly to cash flow gaps, he/she is well on the way to managing a successful medical coding service. The facts are all here, how a business owner chooses to use them is up to him/her.

Stay tuned for the more articles by PRN for your medical coding business.

About PRN Funding:

Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the health care services funding market place. Through a process known as factoring, PRN Funding provides medical coding business owners with the financial resources needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding provides medical coding companies with flexible and immediate access to capital. We give you the freedom to factor what you want, when you want, whom you want, for as long as you want. Prior to founding PRN Funding, Mr. Cohen was an executive officer of The MRC Group, a national provider of Medical Transcription Services. Contact Philip Cohen at toll-free 866.776.5407 or via email at info@prnfunding.com. Please visit PRN Funding, LLC on the web at www.prnfunding.com.