Maintaining a strong ratio of working capital is vital for low-cost borrowing and an excellent underlying measure of organizational operating efficiency. A hospital's working capital can influence ability to meet short-term financial obligations for day-to-day operations, reinvest in new technologies, and meet capital requirements.

 
In a difficult economic environment, hospitals face extra challenges of ensuring strong payable processes so that optimal levels of working capital are maintained and access to capital is available at low cost. With this in mind, HFMA recommends the following strategies to enhance purchasing processes, instill lender confidence in financial statements, and manage working capital as part of the organization's financial strategy.

Seek automated payable solutions when possible. Automating your system for purchase orders can improve document tracking and visibility, reduce fraud risk, and eliminate the delays and costs associated with duplicating and distributing hard copies-a key benefit when you consider a 350-bed hospital may manage approximately 100,000 purchase order invoices and 55,000 non-purchase order invoices each a year.

Leverage benefits of procurement services. E-solutions, such as buyer initiated payments or other automated procurement services, can help hospitals increase float by extending payments to improve cash flow. Some solutions also offer financial incentives for using their services, such as rebates and cash back on travel expenses paid using these options.

"All of those things help," notes Pat Keel, CFO, Good Shepherd Medical Center, a three-hospital system in northeast Texas with annual revenue around $500 million. "Effectively leveraging payment options is a big piece of it, whether you're looking at opportunities for tax-free interest payments or finding solutions that will allow you to stretch out payment terms on large purchases."

Support defensible reconciliation processes. At Good Shepherd, two major payments providers offer a service whereby they download the hospital's disbursement files and reconcile each check with the account, kicking out any variances. Financial management personnel then research the cause of each variance. Each month, the not-for-profit organization's comptrollers complete a checklist that includes such steps as validating the bank records and noting any exceptions, similar to providing a representation letter in an audit. Doing so supports the internal audit process and instills confidence among users of the financial statements, such as the organization's board of directors and capital lenders.

Set and enforce purchasing controls. E-solutions allow organizations to enforce employee compliance with spend policies that institute sign-off hierarchies on purchases and/or require use of payment methods that limit purchase amounts by supplier or by transaction through electronic controls. Periodic audits on the accounts payable side can also support a culture of purchasing control.

There is also value in controlling vendor influence on purchasing. Many hospitals have check points where vendors must obtain purchase orders for any devices or supplies being brought in for use. At Good Shepherd, vendors that do not comply with the organization's policy could have their access to the organization's facilities revoked. Such a policy helps minimize instances where vendors bill for items without approval.

Finance staff identifies these occurrences with assistance from technology that flags requests for retrospective purchase orders or any invoices for items without purchase orders. "We don't end up paying for items that have been ordered without going through proper channels," notes Keel.

Monitor working capital levels frequently. Although a multi-year plan should provide a strategic view of ideal working capital, it is also imperative to track actual trends. Early notice of discrepancies in optimal levels of working capital allows hospitals to take actions such as controlling spending or instituting tougher cost containment measures before capital gaps create larger concerns, such as affecting bond ratings. Although each organization's working capital needs are different based on a variety of factors, it is important to establish and maintain a level that supports the strategic goals and the cash needs of the organization.

American Express Global Commercial Card   

Through its Global Commercial Card group, American Express offers a suite of payment solutions that helps hospitals streamline payment processes and transform them into opportunities for savings. Its dedicated team of hospital vendor payment specialists provides customized solutions by analyzing payment processes, diagnosing inefficiencies, and identifying ways to help each hospital secure larger returns to the bottom line. Working with American Express can help hospitals optimize working capital, increase days cash on hand, achieve their goals around savings, control and efficiency, and strengthen relationships with suppliers.

For more information, visit American Express.