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Understanding How Medical Practice Business Factoring Works
AR factoring is a financial transaction whereby a business, like a medical practice, sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.
Factoring differs from a bank loan in three main ways.
First, the emphasis is on the value of the receivables (essentially a financial asset), [1][2] not the firm’s credit worthiness.
Second, factoring is not a loan – it is the purchase of a financial asset (the receivable).
Finally, a bank loan involves two parties whereas factoring involves three.
Factoring: ARs 1
Conclusion
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Filed under: Funding Basics, Practice Management | Tagged: accounts receivable, AR factoring | 1 Comment »
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