Fast growing saltwater corals from wholesalers

Factoring: Fast liquidity for a rapidly growing healthcare industry

No event has shown the importance of a strong health economy more clearly than the corona pandemic. Hospitals, clinics and medical practices had to adapt their processes to the new disease within a few days and weeks - parallel to normal operations. Pharmaceutical and biotech companies developed new testing procedures and vaccines in record time. The wholesaler organized the import of thousands of tons of sanitary and protective materials. Thanks to the efficiency and innovative strength of the healthcare industry, it has so far been possible to keep the harmful effects of the pandemic within limits.

Growth requires solid financing

The importance of the health economy can also be seen in the figures. In 2019, the industry generated 372 billion euros or 12 percent of German gross value added. Between 2010 and 2019, it grew at 0.8 percentage points per year, significantly faster than the economy as a whole. The trend towards more health awareness and the increasing aging of society lead us to expect a further increase in the demand for health services.

In order to benefit from future growth, the players in the health sector must continuously invest in new technologies and the development of new offers. To do this, they need a solid cushion of capital. But taking out additional credits and loans increases the dependency on the banks and worsens the equity ratio. It is therefore worthwhile to expand the financing portfolio to include alternative financing elements such as factoring.

Factoring, the sale of outstanding receivables, is particularly suitable for small and medium-sized suppliers to the pharmaceutical and medical technology industries. Due to the unevenly distributed market power, they are often forced to give their customers long payment terms. Hospitals and clinics also expect generous payment methods from their suppliers. Payment terms of up to 90 days are not uncommon.

No liquidity problems due to long payment terms

In relation to their own suppliers, however, medium-sized industrial and service companies are hardly able to enforce longer payment terms. Your risk of being affected by a liquidity bottleneck is correspondingly high. As a result, they have to fall back on expensive credit lines again and again.

Medical service providers such as

  • Doctors,
  • Dentists,
  • Psychotherapists,
  • Physiotherapists,
  • Naturopaths,
  • Pharmacies.

It is not uncommon for them to wait a long time for reimbursement from the health insurance companies or the Association of Statutory Health Insurance Physicians. If they provide their services to private patients or self-payers, they are also dependent on fluctuating payment practices.

Factoring, on the other hand, ensures that payments are received quickly and reliably. The sale of accounts receivable works as follows: factoring recipients and factoring providers conclude a framework agreement with each other. Based on a previous debtor check, they agree on the duration of the contract, the amount of fees, interest and security retention as well as the type and quality of the claims to be transferred. In addition, they set a limit up to the maximum amount of which the factor buys receivables. Depending on requirements, the parties also make individual agreements with regard to the claims of individual debtors.

Don't worry about payment defaults

As soon as the contractual details have been settled, the factoring customer can start selling his invoices to the factor. Invoices can be submitted either online or by post. After receiving an invoice, the factor pays within a maximum of two working days. In doing so, he deducts the agreed security deposit from the invoice amount in order to protect himself against defects of title or justified deductions by the debtor. As soon as the customer has paid, the factor forwards the retained amount to his customer. Even if a claim is overdue, the customer receives the retained money.

The security deposit does not serve to protect the factor against payment defaults. On the contrary. With the sale of the receivable, the del credere is completely transferred to the factor. If a customer defaults, the factoring provider does not make any recourse claims against his customer. Together with the accelerated receipt of payment, the transfer of the counterparty risk provides service providers and companies from the healthcare sector with more planning security for liquidity management. Factoring users are therefore less dependent on expensive overdrafts and can offer their customers or patients longer payment terms or installment payments. The improved liquidity situation also allows them to reduce their debt and thereby improve their rating. That being said, they are able to pay their suppliers faster, which means they can enjoy discounts and rebates.

Administrative relief

The sale of accounts receivable offers another advantage: With so-called standard or full-service factoring, the factor takes over the entire accounts receivable management. This means that he is not only responsible for the pre-financing of outstanding debts, but is also responsible for debt collection and dunning. This service brings considerable relief, especially for smaller companies as well as for medical and therapy practices. Because their human resources are usually insufficient for efficient receivables management and the commissioning of a debt collection service would result in considerable additional costs.

Doctors, dentists, psychotherapists and pharmacists, however, have one special thing to consider when factoring: They are subject to confidentiality. Without the consent of the patient, they are not allowed to pass on their data to third parties. The invoices are also part of the protected patient data. For this reason, healthcare professionals must request their patients' one-time written consent before they sell their invoices to a factoring company.

Goods financing and leasing as a useful addition

Factoring is not the only financing alternative that strengthens cash flow and the balance sheet structure without increasing dependency on banks. Medical service providers and companies in the healthcare sector should also consider the following financing solutions in particular:

  • Finetrading
    Pharmacies and drug wholesalers require significant supplies to run their business. Pharmaceutical and biotech companies are also dependent on stocks for uninterrupted production operations. However, the stocks tie up a lot of capital that would be needed for investments, for example. The solution to this problem is pre-financing of goods through finetrading. Finetrading is bank-independent and saves credit lines. It extends the payment terms by several months and thus enables the period between purchase and sale to be bridged. At the same time, the pre-financing of goods makes it possible to take advantage of discounts and rebates, especially since the financier pays the goods immediately to the seller.
  • Warehouse financing
    Companies that hold large inventories can also benefit from inventory financing. The warehouse serves as security for warehouse financing. The financier regularly evaluates the current inventory levels and, based on this, grants the financier a credit line. The inventory valuation is often carried out online, with the financier accessing the data from the inventory management software via an interface. Warehouse financing is almost always cheaper than a supplier loan and usually also costs less than a classic overdraft facility.
  • leasing
    Medical devices such as X-ray or MRT devices, dialysis machines or dental treatment units are expensive. Instead of buying on credit, it is worth considering leasing. Thanks to fixed monthly installments, leasing offers planning security. Leasing installments and special leasing payments are tax deductible. Many leasing offers also contain inexpensive service and maintenance contracts. In addition, leasing makes it easier to replace the devices with current models on a regular basis.

Financing.com: Individually tailored financing solutions for the healthcare industry

Are you working in the healthcare industry and looking for innovative financing alternatives that will help you improve your investment strength and at the same time reduce your dependence on your house bank? In a personal consultation, the experienced experts from finanz.com will show you the best possible solutions. We are independent and work with over 400 financing partners from different areas. This enables us to develop a financing package tailored to their individual situation for each of our customers.

If you have any questions, please contact us at 089-215 2953 0 or via [email protected] We look forward to your request!