When a medical coding service is considering selling their receivables to a factoring firm, it’s important to familiarize themselves with some common medical coding factoring terminology. This is a quick reference guide outlining some of the more commonly-used factoring terms to help medical coding business owners navigate seamlessly throughout the entire factoring process.
ACH (Automatic Clearing House) – One method factoring companies use to electronically transfer funds into an Account Creditor’s account. When an ACH is initiated, the funds are made available electronically in the Account Creditor’s account on the next business day.
Account Creditor – You, the client and provider of medical coding services.
Accounts Receivable – The money that is owed to an Account Creditor for the services it has provided to customers on credit. The amount indicated on an issued invoice.
Advance Rate – Money provided immediately to the Account Creditor-expressed as a percentage of the total invoice amount. Frequently, factoring firms advance between 70-90% of the invoices it buys.
Account Debtor – The purchaser of medical coding services who is responsible for paying the invoice, (a.k.a. your customer.)
Cash Flow – The measurement of cash coming into a company via accounts receivables and cash going out of a company via accounts payable and payroll.
Collateral – An asset that is promised or given to a funder to guarantee the discharge of an obligation by the Account Debtor.
Discount Fee – A fee assessed by a factor that purchases accounts receivable. Traditionally, the discount fee is determined by the size of the invoice, the length of time it takes to collect the funds and the creditworthiness of the customer.
Face Amount or Face Value – The total amount of an invoice.
Medical Coding Factor – A company that provides operating capital to businesses through the purchase of their invoices.
Medical Coding Factoring – An alternative financing arrangement, in which a factor purchases the accounts receivables of a company, advances a specific percentage of the invoice immediately and then collects on those invoices.
Medical Coding Invoice – A legal debt instrument which indicates the amount due from a customer to pay for delivered medical coding services.
Non-Recourse – The period of time in which the accounts purchased by the factor remain the factor’s accounts and do not revert to the Account Creditor if unpaid due to an insolvency event. The factor accepts full credit risk for any and all accounts that it purchases during this period.
Notification – The process whereby the factoring company communicates to an Account Debtor that an invoice has been purchased from the Account Creditor and that the Account Debtor is to pay the factoring company directly.
Recourse – The period of time in which accounts purchased by the factor are able to revert to the account creditor if unpaid due to an insolvency event. The client accepts full credit risk for any and all accounts that it sells to the factor during this period.
Reserve – Amount of money that is not immediately provided to the company factoring its accounts receivable when the account is purchased by the factor, expressed as a percentage of the total invoice amount. (Advance Rate + Reserve = 100% of Total Invoice)
Reserve Release – The Reserve, minus the discount fee, is transferred by the factor to the client after payment is received.
UCC (Universal Commercial Code) – The laws dealing with commercial business.
UCC-1 – The financing statement (Form UCC1) filed to perfect a security interest in named collateral.
Keeping this medical coding invoice funding terminology guide close by during conversations with factoring firms will help medical coding business owners better be able to speak and understand the “factoring language.” Using this article as a reference also allows medical coding business owners to save time by focusing on asking the right kinds of questions to locate the best medical coding factoring firm for their company.
**NOTE: This article is a re-printed version of what was originally written for and published on eZineArticles.com as well as FactoringInvestor.com.