At times, my company struggles from lack of cash flow. How significantly is our lack of working capital going to affect my business in the long-term?
Very significantly. Working capital is the readily available funds needed to run your business. It’s the money you use to meet your payroll and overhead, manage inventory and can be used to invest for growth and expansion. Having adequate working capital is the difference between long-term success and short-term stress. The lack of it leads to cash-flow problems, lost sales or missed expansion opportunities.
DME/HME providers can use working capital to cut costs. Your vendors, suppliers, and distributors generally offer discounts for increased quantity purchases and/or cash payments. By taking advantage of these reductions, these savings directly hit your bottom line. Or you can use the savings to upgrade your internal systems or streamline your operations, improving efficiency and increasing profitability.
Another benefit of having sufficient working capital is ensuring you have adequate inventory on hand to take advantage of sales opportunities. Suppose you just delivered your last unit and don’t have the funds on hand to replenish your inventory. How much business might you lose because you could not deliver? Or how much added business could you generate by using your discounts to be more competitive in your pricing?
For DME/HME providers, having adequate working capital is especially critical because of third party payor reimbursement delays. Traditionally, you acquire working capital through cash flow generated by your revenue stream, or funds are obtained through debt or equity financing. However, another financial tool increasingly being used by providers is Medical Accounts Receivable (MAR) Funding, the purchase and sale of your accounts receivables. It lets you convert a “non performing” asset from your balance sheet into the working capital you need, within 24-48 hours of billing third party payors. With MAR funding, you can generate a steady and predictable cash flow for your company without debt or ceiling caps.
Today healthcare providers must continually evaluate their current financial strategies to insure long-term success. Medical accounts receivable funding should be a key tool in that process.
